(Kitco News) – Markets in the United States and around the world are anxiously awaiting the resumption of the Federal Reserve’s rate-cutting cycle, which began with a 50-basis-point cut in September 2024, but ended in December after two more 25-bps cuts. Gold traders are particularly eager to see lower rates, as the easing of the trade tariff premium has left precious metals prices stuck in a $200 range since late April.
With the release of the minutes from the last Federal Reserve meeting coming up Wednesday afternoon, and Fed Chair Powell’s keynote speech from Jackson Hole on Friday, the market may finally receive its first clear direction from the central bank since the surprisingly weak jobs report on Aug. 1 and the uptick in PPI inflation last week.
And a number of metals experts believe clarity for the broader market could mean new momentum for the gold price.
Rates are too high today
Kevin Grady, president of Phoenix Futures and Options, told Kitco News on Friday that he thinks interest rates should already be lower than they are now.
“I think they’re probably going to be, you even hear people say 50 basis points,” he said. “The only thing stopping it would be that uptick in inflation. But that uptick, if you really look at it line by line item, it’s from the tariffs, and without trade, it's 2%. So that was finally the tariff bump that everybody was waiting for. I don't think that's going to keep staying. I think that's just when the tariffs went into effect, and you got the bump.”
Grady said he thinks the Fed funds rate should be 25 basis points lower. “When you look at those revisions too, [holding rates] looked like a terrible decision when those revisions came out, 250,000 jobs. The bottom line is that we have to have a better system. I think of what those lower interest rates would have done through the middle of August. If [Powell] would have had the correct data from those two previous months, I think he would have cut rates. And to be off by that much, there's a problem.”
Minutes will shed light on FOMC dissenters
Grady believes the minutes from the last Fed meeting could be significant for market participants.
“People want to see if there's any dissensions, and they want to see who's in what camp,” he said. “And people are starting to talk about where it has become political. The more the Democratic members are, ‘No, we're not going to cut rates,’ and vice versa, that's not where you want to be. I think we need to see where the Fed is really independent.”
“I think the minutes are going to matter,” he added. “I think people want to see how close they are, what people are looking for. Are they looking for 50 basis points or 25 basis points? Who wanted to cut rates in July?”
Grady said the interest rate picture has been muddied following last week’s CPI and PPI inflation reports.
“I think people see that uptick in inflation and right away think, ‘Oh wait a minute, maybe the Fed’s not going to cut rates,’” he said. “There was a camp saying he should do 50 basis points, but then all of a sudden people go from that to, ‘Wait a minute, now he's not going to cut at all in September because of this uptick in inflation.’ It's just too much uncertainty.”
The Fed's moving goalposts
He believes the Fed bears partial responsibility for this uncertainty, as they’ve done a poor job of setting clear expectations and then acting upon them.
“I think their job is to communicate a little more clearly,” Grady said. “Powell comes out and says, ‘This is the criteria that we're looking for to cut rates,’ energy prices, tariffs, uncertainty, inflation numbers, all that. But when all those things start clicking in the right direction, you can't then turn around and say, ‘Now I'm waiting for something else.’ That's what the market's trading on. The markets, they see those numbers and think, ‘Okay, he's waiting on tariffs.’ You see all of a sudden tariff clarity, and then the markets react to that because of the checklist: What's going to happen for interest rates? Same thing happens with the inflation data. This is on Powell's checklist. When it hits the numbers, boom, then the market reacts to that.”
Grady said the Fed needs to follow through on its own criteria. “They need to be clearer with that,” he said. “You can't just keep moving the bar every time. ‘This is what it takes for me to cut rates.’ And then we did all those things, and all of a sudden it's, ‘Oh no, wait a minute, I'm going to do this.’”
“That's why you get the talk that [Powell] is being political, and Trump's people are playing politics,” he said, where it should really be all about the data. “It has to be the numbers,” he said. “It's based on math, and that's what it should be.”
Daniel Pavilonis, senior commodities broker at RJO Futures, told Kitco News in a Friday interview that barring a surprise rate cut, he doesn’t see the FOMC minutes or Jackson Hole materially impacting gold prices – but that doesn’t mean nothing big will be announced.
“The minutes are backwards-looking,” he said. “Maybe we'll hear a little bit more about the anticipation of rate cuts at the Fed. But I think ultimately, gold will just stay in its sideways channel.”
“The big shock is the move in interest rate probabilities,” he added. “We went from 99.8% chance that we're going to cut in September, that drops, and now it's back up.”
Will the Fed tolerate higher inflation?
Pavilonis said that Jackson Hole could be the place for the Fed to signal rate cuts – and maybe also a new openness to higher inflation.
“The only way to get yourself out of this [debt] situation is inflation,” he said. “It's just got to be managed inflation. You can't have hyperinflation, but they need inflation to inflate their way out of the debt, so I think they want to see inflation.”
“They want it managed,” he said. “They don't want restrictive rates, but high enough where they can just put them back on when they need to.”
Pavilonis said the Fed’s signaling function is also an important consideration when considering rate cuts, and this can be even more impactful than the rate reduction itself.
“You can't cut in a way where [it looks like] we're cutting because the economy is tanking right now, so we need to be supportive of the economy,” he said. “If it is tanking, and you're cutting because the economy needs support, then you didn't do your job right as a Fed official.”
“And then the opposite side of that is, you're still higher than most other countries in terms of rates,” he added. “But I think that, even with a quarter-point, gold can still stay sideways. I think it's going to stay more economic-data-dependent and see how some of this stuff plays out with trade deals over time.”
Jackson Hole could soft-launch new Fed policies
Pavilonis noted that over the years, the Fed has also used Jackson Hole as an opportunity to prepare the market for upcoming operations and policy changes.
“Yellen signaled openness to unconventional tools like QE in future downturns,” he noted. “Bernanke signaled the launch of Operation Twist in 2011. He also, in 2010, was looking at QE too, because of all the stuff we were going through, the European contagion and the financial crisis that we were just getting out of, so maybe something comes out of it.”
“Maybe there's some signaling of more willingness to cut interest rates at the next Fed meeting,” he added. “There could be some kind of conditioning where Powell comes out and says something that may align with rate cuts.”
But that said, Pavilonis still doesn’t see what the next driver for gold prices could be. “We've moved so high in terms of price on gold over the last couple of years,” he said. “What's going to drive it to double, or get up to $4,000, or $5,000?”
Rate path clarity could reignite gold rally
John Murillo, Chief Business Officer of B2BROKER, told Kitco News on Tuesday that Jackson Hole could provide signals about the path of interest rates – and he believes they could significantly move the gold price.
“Any additional clues will profoundly impact assets like gold,” Murillo said. “According to the CME FedWatch tool, market participants are looking at an 84% chance of a 25-basis-point rate cut at the Fed's next meeting. Typically, gold performs well in a low-interest-rate environment and during times of uncertainty.”
“Gold prices have been hovering around $3,300-$3,400/oz, and the main reason for this is undoubtedly the uncertainty surrounding the Jackson Hole summit and potential geopolitical events,” he said. “The current plateau in gold prices is largely a result of mixed signals from the Fed regarding future rate cuts. That said, central banks are still in the market buying gold, which helps support the bullion price.”
“Historical data suggests that a dovish Fed, a geopolitical shock, or a significant drop in real yields could spark another rally,” Murillo added. “Plus, technical analysis indicates a symmetrical triangle, hinting that a breakout could be on the horizon soon.”
Gold prices rose steadily higher overnight, and they have been picking up further momentum through Wednesday morning’s trading.
Spot gold last traded at $3,345.37 per ounce for a gain of 0.89% on the session – just $5 below the session high.
