(Kitco News) - Gold remains caught in its broader four-month trading range, but dovish comments from Federal Reserve Chair Jerome Powell are creating solid bullish sentiment in the marketplace as both Wall Street and Main Street expect prices to be higher next week.
On Friday, in his much-anticipated speech at the Federal Reserve’s annual central bank symposium, Powell laid the groundwork for a potential rate cut as early as next month. He highlighted rising inflation risks and slowing economic growth. However, he also said that despite balanced risks, a shift in U.S. monetary policy might be needed.
“..With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” he said in his prepared remarks.
Gold prices jumped 1% in their initial reaction to the comments and have managed to hold onto their gains, looking to close the week near its highs.
“Powell’s statement was a real eye-opener for many who thought that the Fed chair would not sound dovish. His statement has been clearly read as a dovish statement, and it has put the gold price back on track for this week, as we are looking at some solid gains. We do believe that the recent weakness was a great opportunity, as now the shining metal is more than likely to march higher from here,” said Naeem Aslam, Chief Investment Strategist at Zaye Capital Markets.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, said that although the gold market continues to see a summer lull, the Federal Reserve has opened the door wide to rate cuts through year-end.
“In this environment the yield curve is going to steepen and the U.S. dollar is going to weaken, this is a positive environment for gold. It’s still in a quiet summer market but it’s hard to see how prices aren’t higher next week and longer term,” he said.
In the near term, Hansen said that gold prices need to rise above $3,450 an ounce before investors can consider April’s record highs above $3,500 an ounce.
Christopher Vecchio, Head of Futures Strategies and Forex at Tastylive.com, said that despite a slow summer, gold is ready to pop as the Federal Reserve prepares to ease interest rates.
“It looks like we are going to get rate cuts as inflation pushes closer to 3% so maybe owning some gold continues to make sense for investors,” he said.
This week, 13 market analysts participated in the gold survey, and no bearish votes were cast. Among the participants, eight analysts, or 62%, were bullish on gold for next week; meanwhile, five analysts, or 38%, were neutral on the precious metal.
Meanwhile, 194 votes were cast in Kitco’s online poll, with Main Street investors also pulling back on their recent bullishness while still remaining solidly optimistic on gold’s prospects. A total of 115 retail traders, or 59%, expected gold prices to rise next week, while another 35, or 18%, expected the yellow metal to trade lower. The remaining 44 investors, representing 23% of the total, saw gold trending sideways in the near term.
Michael Brown, Senior Market Analyst at Pepperstone, said that while Powell’s comments could ignite a bullish rally in gold, there are still some unanswered questions around Powell’s forward guidance.
“Powell has clearly endorsed the idea of a September cut, but I’d imagine that attention quickly turns to whether this will now prove to be a series of rate reductions, or a ‘one and done’ scenario,” he said.
Even if gold is not ready to break out just yet, Brown said that he remains long-term bullish on gold.
“Especially as President Trump once more ramps up his attacks on the Fed, further eroding the idea of monetary policy independence and boosting the attraction of ‘hard’ assets in the process,” he said. “I’d say there’s a good chance of new ATHs before the year is out.”
