The dove has landed? Gold boosted back above $1,400 this morning after Federal Reserve Chairman Jerome Powell began his testimony to Congress signaling openness to a rate cut.
Powell will appear before Congress for two days – today and tomorrow – in semiannual testimony on the nation’s economic health and policy outlook. This morning, Powell said in prepared remarks that since Fed officials met in June, “it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.” Adding “inflation pressures remain muted.”
Investors are listening closely to the testimony to determine what Fed policy makers will do at their July 31 meeting. Rate-cut speculation is partly behind gold’s rally to a six-year high in recent months.
The CME FedWatch Tool has kept the odds of a July 31 rate cut at 100% since the Federal Open Market Committee’s last meeting in June. Since last week’s positive jobs report, however, the forecast has leaned toward a less deep cut. The likelihood of a 50-basis-point cut fell to just 1.8% from 25% on July 2, with the chance of a 25-basis-point reduction rising to 98.2% from 75%. After Powell’s comments this morning, the chance of a 50-basis-point cut jumped back up to 18.3%.
Gold futures, which have clung to prices barely above $1,400 an ounce since last week, rose this morning on Powell’s remarks. Currently, the August contract is at $1,410.70, up $10.2
The minutes of the June meeting of the Federal Open Market Committee are also due out at 2 p.m. New York time on Wednesday and may offer additional hints about policy makers’ thinking.
August gold futures rose 50 cents to $1,400.50 an ounce Tuesday on Comex and are up just 40 cents since Friday. Futures were down 0.4% as of midnight New York time.
The market is also expected to gain direction later this week from two U.S. economic reports due out Thursday – the consumer price index for June and weekly initial jobless claims.
Traders have turned to gold as a safe-haven asset in recent months amid fears of a tepid U.S. economy and a trade war with China. David Roche, president and global strategist at London-based Independent Strategy, told CNBC on Monday that he sees prices reaching $2,000 an ounce by the end of the year as markets “crumble” because of widespread international trade tensions.
Meanwhile, Chinese factory prices were unchanged in June from a year earlier, China’s National Bureau of Statistics reported Wednesday. The producer price index figure, which was forecast to rise, indicates that China’s industrial economy may be slowing. It was the smallest change in the PPI since August 2016, when it fell year on year. Chinese CPI stayed at 2.7%, the same figure as in May, the data show.
Silver futures were also boosted this morning. Currently the August contract is at $15.24, up $0.138
Both spot platinum and spot palladium were lower early Wednesday. Platinum dropped 0.7% Tuesday, and palladium slipped 0.9%. This morning, the platinum group metals are back up with current spot prices at $825.60, up $11.50 and $1,596.40, up $41.50, respectively.
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