(Kitco News) - Gold's push to $2,500 an ounce could be the start of a bigger move, as analysts see solid upside potential with the Federal Reserve preparing to lower interest rates next month.
Analysts note that the market received the clearest signal on Friday during Powell's speech at the Jackson Hole Central Bank Symposium. "The time has come for policy to adjust," Powell said. "The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks."
Gold's run above $2,500 marks its fifth push to record highs so far this year, and while prices are elevated, analysts have said that it does not appear overbought. December gold futures last traded at $2,547 an ounce, roughly unchanged from last week.
"I don't think we have seen gold's full potential just yet," said Eric Strand, Founder of AuAg Funds, in an interview with Kitco News. "Gold may be at $2,500, but the Federal Reserve is just starting its rate-cutting cycle."
Strand added that Western investors are only beginning to take an interest in gold, with rate cuts expected to lower the opportunity cost of holding the precious metal.
According to holding data from SPDR Gold Shares, the world's largest gold-backed exchange-traded fund, inflows of 12.38 tonnes have been seen so far this month; however, holdings are still down by more than 21 tonnes this year.
Although Strand is bullish on gold, he added that elevated speculative positioning could create some near-term volatility.
Adam Button, Head of Currency Strategy at Forexlive.com, said that with interest rates heading lower, gold prices will continue to shine as the U.S. dollar slides.
"This doesn't look like a market that is topping," he said.
Although Powell suggested that the central bank will be methodical in the approaching easing cycle, Button noted that expectations could easily shift.
While markets have focused on Powell's comments on adjusting monetary policy, Button said he is paying attention to a much more powerful statement.
Powell also said: "We will do everything we can to support a strong labor market…"
"To me, that is the clearest indication that a Fed put is in play," Button said. "When we get a run of weak labor data, the Fed will be ready to cut aggressively. It won't be now, but the direction for interest rates, and therefore the U.S. dollar, is down."
Phillip Streible, Chief Market Strategist at Blue Line Futures, said he could see gold prices pushing to $2,600 an ounce before markets see more consistent selling pressure and profit-taking.
He noted that although markets could be a little too aggressive in their rate cut expectations, it will take some time to shift those perceptions.
Along with a potential 50-basis-point rate cut in September, markets see rates falling more than 100 basis points by the end of the year.
"A hundred basis points of easing is a little too much, but I think it will take more solid data for these expectations to change," he said. "I think gold has a little bit more time before momentum changes."
Looking ahead to economic data next week, markets will be focused on inflation data, with July's Personal Consumption Expenditures (PCE) Index being the highlight. Markets will also receive important manufacturing data and the second reading of second-quarter GDP.
Economic data to watch next week:
Monday: U.S. Durable Goods Orders
Tuesday: U.S. Consumer Confidence
Thursday: Weekly jobless claims, Preliminary Q2 U.S. GDP
Friday: US PCE Index, Personal Income and Spending
