Gold holds above $2,500 an ounce after touching $2,510 in the first moments of this week’s trading, while still down 0.15%. COMEX gold futures also touched $2,550 on Friday.
Optimism about multiple rate cuts and anticipation of more signals from the Fed, whether from the minutes of the last meeting or Jerome Powell’s speech in Jackson Hole, and focus on the outcomes of the Gaza ceasefire negotiations are the main drivers of gold this week.
Markets had boosted their sentiment on Friday about multiple rate cuts this year after worse-than-expected data from the housing market, which is under pressure due to very high mortgage rates. While we are likely to see a full percentage point cut this year starting in September with 25 basis points, according to the CME FedWatch Tool. While markets have overstated their concerns about the health of the US economy, which previously led to pricing in an emergency 50 basis point cut in September, this has become unlikely.
Markets will look for further signals of the possibility of a rate cut this year from Powell’s speech or the minutes of the June FOMC meeting. The focus will be on whether the Fed is actually ready and comfortable with a September cut.
While a more hawkish tone than expected could lead to a significant correction in gold, monthly inflation continues to rise, as does core inflation, which remains firm at 3.2% y/y.
Beyond that, the absence of a significant breakthrough in the Gaza ceasefire negotiations, which would dispel fears of a wider regional war, could help gold retain its luster at historical levels.
Despite the talk about the positive atmosphere that prevailed in the negotiations last week, they did not achieve noticeable progress. The major points of contention, most notably regarding border crossings and a permanent ceasefire, are still pending. This in turn led Hamas to reject the US proposal presented on Friday for not resolving those points, according to Axios.
Doubts also persist about the effectiveness of these rounds of negotiations, which senior officials described as a last chance. A Hamas official said that the United States is exaggerating the progress made in order to buy time without stopping the war, according to The Wall Street Journal. The Journal quoted a specialist at Georgetown University as saying that the chances of success of the negotiations have become less than before, with no noticeable change in the public stances of the warring parties.
