(Kitco News) - Gold is breaking out of its summer slump, with futures surging to finish the week and the month at fresh record highs.
Spot gold last traded at $3,443.50 an ounce, up more than 2% from last Friday and 4.7% for the month.
Michele Schneider, Chief Strategist at MarketGauge, said that her buy signal in gold was triggered last week following dovish comments from Federal Reserve Chair Jerome Powell.
In his speech last Friday at the Federal Reserve’s annual central bank symposium in Jackson Hole, Powell said that a shifting balance of risks in the economy may warrant an adjustment in monetary policy.
“Powell showed markets that he is not overly concerned with getting inflation back down to 2%,” she said. “He is now more focused on the slowdown in the economy and the labor market.”
According to some economists, Powell's stance was confirmed on Friday as inflation pressures rose in line with expectations. The U.S. Department of Commerce reported that the Core Personal Consumption Expenditures (PCE) index—which excludes volatile food and energy prices and is the Federal Reserve’s preferred inflation gauge—rose 2.9% in the 12 months through July.
Despite rising inflation, markets are almost fully pricing in a rate cut next month.
Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management, said that he expects the latest inflation data will not stop the Federal Reserve from cutting rates next month.
“There are another two important inflation reports before next month’s meeting – PPI and CPI on 9/10–9/11 – but as long as those reports don’t show a huge spike in inflation, the Fed will be almost guaranteed to cut interest rates by 0.25%,” he said.
Phillip Streible, Chief Market Strategist at Blue Line Futures, said that in the current environment, he expects to see higher gold prices in the near term. However, he noted that he would like to see both spot and futures prices close above $3,500 an ounce.
December gold futures, currently the most actively traded contract on the CME, were last trading at $3,511.50 an ounce, up more than 1% on the day and nearly 3% for the week.
Despite the premium volatility, Streible said that the trend in both gold and silver is clear.
“Gold is rallying because it is starting to sniff out stagflation,” he said.
Looking ahead to next week, Friday’s nonfarm payrolls data presents the biggest risk and opportunity for gold. Analysts said that weak labor market data will continue to support higher gold prices, as it will solidify the Federal Reserve’s renewed easing cycle.
“If the August jobs report shows hiring is still weak and slack in the job market is widening, it will probably clinch the case for a rate cut at the September decision,” said Bill Adams, Chief Economist for Comerica Bank, in a note Friday. “Comerica forecasts job growth to pick up slightly in the August jobs report, with 45,000 nonfarm payroll jobs added from July and the unemployment rate holding steady at 4.2%.”
Beyond economic data, politics is also heavily influencing markets. Analysts expect geopolitical uncertainty to provide bullish momentum for gold.
President Donald Trump’s ongoing conflict with the Federal Reserve is weakening confidence in the U.S. dollar as a reserve currency, making gold an attractive monetary metal.
In a new tactic, Trump’s focus on the Fed has shifted away from Powell to other vulnerable votes on the Committee. Trump is actively trying to remove Federal Reserve Governor Lisa Cook from the central bank’s monetary policy committee, referencing allegations that she made false representations on mortgage agreements several years ago.
Cook has not been charged with any civil or criminal offense.
Although Cook’s termination is now pending in U.S. courts, some analysts have said that the Fed’s independence has already been damaged.
“Trump controls the Fed narrative now, which means rates will come down and the gold price will move higher,” said Naeem Aslam, Chief Investment Officer at Zaye Capital Markets.
Chantelle Schieven, Head of Research at Capitalight Research, said that she expects Trump’s conflict with the central bank to further damage the U.S. dollar’s reputation as the world’s reserve currency and, in this environment, there is no telling how high gold prices can go.
She added that she expects it is only a matter of time before gold prices hit new all-time highs.
Economic data to watch next week:
Monday: North American markets closed for Labor Day
Tuesday: US ISM Manufacturing PMI
Wednesday: US JOLTS job openings
Thursday: ADP nonfarm payrolls; US weekly jobless claims; ISM Services PMI
Friday: US Nonfarm Payrolls
