Gold Prices Surge Past $2,500 Amid Weak Dollar and Fed Rate Cut Speculation

Commodity

Summary:

Gold prices have hit another record high, and may find short-term support in the face of looming interest-rate cuts from the Federal Reserve and geopolitical uncertainty.

Gold prices have surged to new highs, surpassing $2,500 per ounce, driven by a weakening dollar and growing speculation about potential Federal Reserve rate cuts. Spot gold is currently trading around $2,500 per ounce, with a recent peak at $2,510. This significant increase, over 20% so far this year, is fueled by a mix of economic factors, geopolitical tensions, and substantial central-bank buying.

Recent U.S. economic data, including weak housing numbers and lower-than-expected inflation, has raised expectations for a Fed rate cut as early as September. Since gold typically benefits from lower interest rates, its attractiveness has risen. Additionally, escalating geopolitical risks, such as the ongoing Ukraine conflict and Middle Eastern tensions, have further increased gold's appeal as a safe-haven investment.

Central banks have been a major driver behind the gold rally. Over the past five years, they have substantially increased their gold reserves, now accounting for nearly 10% of global production. Countries like Russia, China, India, and Turkey have been leading this accumulation.

Western investors are also showing growing interest in gold as the Fed nears a possible rate-cutting phase. This combined demand from both Eastern and Western buyers is unprecedented and could push gold prices even higher.

As the Jackson Hole symposium approaches, where Fed Chair Jerome Powell may provide more insight into monetary policy, gold prices are likely to remain sensitive to Fed announcements. Nevertheless, ongoing central-bank demand and geopolitical uncertainty are expected to keep gold prices supported in the near term. Current market expectations suggest a 70% chance of a 25-bps rate cut in September and a 30% chance of a 50-bps cut.

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

ING

Forex

USD: Price action is dollar negative

DXY is this morning breaking under 102.16 - the low seen during the flash crash of Monday 5 August. There is no flash crash underway today and instead, the dollar's decline looks to be part of an orderly adjustment cycle as the Fed prepares to cut rates.

Fed communication will be the headline story for this week. It starts today with some introductory remarks from our favourite Fed speaker, Christopher Waller, at 16:15 CET today. Wednesday then sees the release of the FOMC minutes from July - when the Fed switched to re-emphasising its dual mandate of both maximum employment and price stability. Friday then sees the main event of the week, where Chair Jerome Powell speaks on the economic outlook at the Fed's Jackson Hole symposium. In addition, Wednesday sees some provisional annual benchmark revisions to the payrolls report, which could see some downward revisions to job gains made in the year to March 2024.

While some may be arguing that the dollar does not need to sell off much further, since a Fed easing cycle to 3.00/3.25% is already priced, we would suggest caution in that the Fed cycle has not even started yet and any softer US data could mean Fed rates start to get priced at accommodative and not just neutral.

At the same time, dollar price action has been soft. Gains made on the back of last week's robust July retail sales have proved fleeting and today's dollar weakness is not being led by softer US rates. It therefore seems like speculators are looking to explore some broad dollar weakness ahead of what should be the first Fed cut on 18 September.

As mentioned above, the only event on the US calendar today are those remarks from Christopher Waller. Let's see if DXY can press 101.75 today, below which a move to 101.00 beckons.

EUR: Rising tide of dollar bearishness lifts EUR/USD

EUR/USD is now approaching its highest level of the year (1.1054, 3 January). Understandably there has been no major re-assessment of the euro's prospects and this is an entirely dollar-led move. In fact, this week's eurozone PMI releases should still show an economic bloc struggling to grow, with a composite PMI index stuck near 50. However, Tuesday sees the release of eurozone negotiated wages for the second quarter. Should these prove sticky, investors could start to rein in expectations of European Central Bank easing this year. Currently, another 68bp of rate cuts are priced this year - which we think is 18bp too much.

Back to the main story of dollar weakness. The default story here could be that EUR/USD will remain in its 1.05-1.11 range - a range that has dominated for the last 18 months. However, the Fed is just about to start easing and our economists look for weaker US activity data as ever-tighter US real interest rates bite harder. Should EUR/USD start to trade through 1.11, we would not underestimate its ability to follow through given that realised volatility has been so low, for so long.

Elsewhere, we've published our latest thoughts on EUR/CHF. Swiss exporters think a fair level is 0.98. We think it will trade more in the 0.92/095 area as global interest rates converge on low rates in Switzerland - and whilst the market struggles to price the Swiss policy rate below the 0.50% area.

GBP: Dollar weakness, plus M&A activity may be helping

GBP/USD looks set for a retest of the year's high at 1.3045 as broad dollar weakness dominates global FX markets. We had thought that the Bank of England's dovishness could keep sterling gains in check. On that, BoE Governor Andrew Bailey speaks at the Fed's Jackson Hole symposium this Friday.

What we may be underestimating, however, is the demand for sterling coming through merger and acquisition activity. The UK this year is the target region for over $200bn worth of deals. The impact of M&A on FX is a very cloudy one - e.g. to what extent a cross-border deal is funded locally. But we suspect M&A may be one of the reasons why sterling is staying a little stronger than our baseline forecasts.

CEE: The rally is done unless the payers return to rates markets

The second half of the month is usually quieter in the CEE region. This week, Poland and Turkey will take the spotlight. The calendar is empty for today and the first event this week will be the Central Bank of Turkey meeting tomorrow. We expect rates to be unchanged at 50% in line with expectations. There are continued challenges with the disinflation process, given administered prices, tax hikes and sticky services inflation. We think an improvement in monthly inflation trends, inflation expectations, and a more visible slowdown in economic activity may lead to the start of rate cuts from November. On Wednesday and Thursday, we will see monthly data in Poland including industry, wages, retail sales, and PPI. While the labour market is showing signs of easing with wage growth slowly falling, the economy is gradually recovering but there are still headwinds coming from abroad and from consumers.

CEE currencies saw strong gains last week, but we feel our bullish stance is running out of steam and we will need to see more momentum from the rates market for CEE FX to have room to rally further. Even though rates bounced a little off the lows last week, market expectations are still on the strong dovish side compared to our economists' forecasts. We think this is mainly the case in Poland, where we see the most room for interest rate payers in the CEE region. Although we would now prefer to be neutral on the Polish zloty and Czech koruna at current levels for the next few days after a strong rally, the return of rate payers could bring a further boost to these currencies. HUF rates witnessed this on Friday and the rate differential has once again returned to the highest levels since mid-July. This brings us back to the view that EUR/HUF could return to 390 ahead of next week's National Bank of Hungary meeting. However, the Hungarian market is closed today and tomorrow.

Risk Warnings and Disclaimers

Add to Favorites

Warren Takunda

Economic

Malaysian Prime Minister Anwar Ibrahim will visit India this week for the first time since taking office in 2022, a trip that analyst say is a strategic move for Malaysia to realign its position on the global stage.

Anwar will stay in the South Asian country from Monday to Wednesday at the invitation of Prime Minister Narendra Modi, according to the Indian Ministry of External Affairs. The last visit by a Malaysian head of government was in 2018 by former Prime Minister Najib Razak.

"The visit of Prime Minister Anwar Ibrahim would pave [the] way for further strengthening of India-Malaysia bilateral ties by charting out a multi-sectoral cooperation agenda for the future," the Indian ministry said in a statement Sunday.

As the economies of the Global South are increasingly finding themselves caught in global power struggles, countries like Malaysia are exploring multipolar platforms as part of a power-hedging strategy. Anwar is expected to seek support from Modi for its accession to BRICS, the grouping of large emerging economies including India and China, reflecting Malaysia's ambition to strengthen its influence within a diversified global order.

"Anwar has made it a priority for Malaysia to join BRICS despite unclear advantages. There's perhaps a belief within the foreign policy establishment that Malaysia can aspire to membership based on its rising status," Benjamin Barton, Head of School at the University of Nottingham Malaysia, told Nikkei Asia.

Barton said that India is increasingly pivotal in global affairs, both as an emerging power and as a pillar of the Global South's interests, adding that stronger ties with India would align Malaysia with the shifting multilateral landscape, where India's influence in international affairs is set to grow.

Fikry A. Rahman, head of foreign affairs at Malaysian think tank Bait Al-Amanah, believes diversifying partnerships and aiming to "de-dollarize" -- or reducing dependence on the U.S. dollar -- is strategically beneficial for Malaysia. He emphasized that the application to join BRICS highlights Malaysia's strategy to diversify its multipolarity by involving more like-minded partners.

During the visit, Malaysia and India are expected to sign agreements aimed at enhancing bilateral trade, which totaled $43.3 billion last year. In 2023, Malaysia became India's third-largest trading partner within ASEAN, with exports primarily driven by palm oil and electronics. Indian tourist arrivals in Malaysia have surged by 165% to 325,000 compared to 2019 figures, according to the second-quarter GDP report by Bank Negara Malaysia, the central bank.

Malaysia's Ministry of Foreign Affairs said Sunday that Anwar will participate in a roundtable meeting with several Indian industry leaders to advance bilateral economic cooperation.

Rahul Mishra, an associate professor at Jawaharlal Nehru University in India, said Malaysia and India can be strong partners in the semiconductor sector rather than competitors. "With Malaysia unveiling its semiconductor policy and India on the path to launching a comprehensive approach, the potential for collaboration is at an all-time high. New Delhi and Putrajaya (Malaysia's administrative capital) must not miss this once-in-a-generation opportunity," he said.

Fikry echoed this sentiment, emphasizing the importance of semiconductor partnerships with India as Malaysia aims to move up the value chain in electronics. He noted that acquiring Indian expertise in integrated circuit design is crucial.

In August, Malaysia formally opened its first semiconductor IC design hub in Selangor, near Kuala Lumpur, marking its move up the value chain in the electronics sector.

Although India's semiconductor industry is relatively new, Fikry pointed out India's ability to produce talent in chip design. "A fast-track bilateral arrangement can facilitate the education and talent development process to support our semiconductor industry," he said.

According to HSBC, India's semiconductor industry is expected to reach $8.32 billion in 2024, growing annually by 8.68%. The country aims to become the world's largest semiconductor manufacturing hub within 4-5 years, focusing on integrated circuits and system-on-chip technologies.

Malaysia is positioning itself as a key player in the global semiconductor market, aiming to attract 500 billion ringgit ($112.45 billion) in investments through its National Semiconductor Strategy.

For Anwar, the visit to India is also crucial for its ASEAN chairmanship next year.

"Regionally, the visit should prepare Malaysia's 2025 ASEAN chairmanship by focusing on elevating the ASEAN-India Free Trade Agreement and bilateral trade. Advancing digital connectivity and leveraging India as a dialogue partner is crucial to meet regional digital economic demands," Fikry added.

Source:NikkeiAsia

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Warren Takunda

Economic

Japanese core machinery orders, the key leading indicator of business investment in equipment, posted their first increase in three months in June, up 2.1% on the month, after falling 3.2% in May and 2.9% in April, backed by the need to digitize and automate operations amid widespread labor shortages, data released Monday by the Cabinet Office showed.

The indicator, which tends to fluctuate sharply from month to month, came in much stronger than the median economist forecast of a 0.9% increase (forecasts ranged from a 1.0% drop to a 5.2% rise). Orders were led by engines from shipyards and computers from business machine makers, wholesalers/retailers and telecommunications firms.

Core orders fell just 0.1% on quarter in the April-June quarter, well above the official projection of a 1.6% decrease provided in May and following a 4.4% jump in January-March. It was largely in line with the median economist forecast of a 0.2% rise (forecasts ranged from a 1.2% dip to a 0.9% gain).

The Cabinet Office projects core orders will rise 0.2% in the July-September period. It maintained its assessment after downgrading its assessment for the first time in four months in July, “The pickup in machinery orders is pausing.” Previously, it said, “Machinery orders are showing signs of a pickup.” The three-month moving average of core orders fell 1.4% in the April-June period after falling 1.1% in March-May and rising 2.4% in February-April.

Some firms remain cautious amid slowing global demand and elevated costs but companies in general have solid plans for investing in automation amid labor shortages and in digitization and emission control, which was confirmed in the Bank of Japan’s latest quarterly Tankan survey for June released in early.

Orders from manufacturers dipped 0.3% on the month in June after rising 1.0% in May, slumping 11.3% in April and soaring 19.4% in March. Orders from non-manufacturers rebounded 2.4% after falling 7.5% in May and rebounding 5.9% in April and dipping 11.3% in March.

Core machinery orders, which track the private sector and exclude volatile orders from electric utilities and for ships, showed their first year-over-year drop in four months, down 1.7%, after increases of 10.8% in May, 0.7% in April and 2.7% in March, which was the first rise in 13 months. It was much weaker than the consensus forecast of a 7.1% increase.

Core orders rose to ¥876.1 billion on a seasonally adjusted basis in June after falling to a four-month low of ¥857.8 billion in May and slipping to ¥886.3 billion in April and surging to ¥913.0 billion in March, which was the largest since ¥920.1 billion in January 2023.

Source: MaceNews

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Swissquote

Forex

Central Bank

The week starts on a mixed note in Asia, after major US indices recorded their best week since last October and boosted appetite in global risk markets. A softer-than-expected CPI read in the US combined with robust retail sales and weekly jobless claims data boosted the expectation that the Fed could eventually achieve a soft landing. Goldman Sachs cut its recession forecast from 25% to 20%.

The return of the carry positions in the yen last week also helped boosting appetite in the riskier pockets of the market. As a result, the S&P500 rallied almost 4% last week and is up by more than 8% since the dip we saw at the beginning of the month, Nasdaq 100 rallied more than 5% last week and is up by almost 12% since the August dip, the Dow Jones gained almost 3% last week and 6% since the August dip and the Russell 2000 recovered nearly 3% as well last week and has rebounded by more than 7% since its dip earlier this month. The Stoxx 600 recovered more than 6% since the August dip and the Japanese Nikkei soared almost 22%.

In summary, it looks like the mini panic of the beginning of the month has well reversed. The VIX index is back to the pre-panic levels.

What’s next?

We don’t have a busy economic calendar this week, but the central bank policies and rate discussions will be on the menu of the week as the annual Jackson Hole meeting will begin on Thursday, Federal Reserve (Fed) Chair Jerome Powell will speak on Friday, and many other central bankers will speak at the event.

Although Jackson Hole witnessed important policy pivots in the past and is a place where important twists and tweaks could happen, there is little potential for further dovishness regarding the Fed policy when Powell speaks later this week. There is nothing out there – at least in the data that’s available to us – that suggests that the Fed should announce a jumbo rate cut at the September meeting. We will be looking for a hint of what will happen after the September rate cut.

Price-wise, the US dollar is softer on Monday, the dollar index is testing the August support at the time of writing. The market pricing remains more dovish than what the Fed is set to deliver at the September meeting (with around 30% probability given to a 50bp cut), and also more dovish than what the Fed could deliver for the rest of the year. Therefore a USD rebound is plausible. The EURUSD which pushes higher above the 1.10 level and Cable that is preparing to re-test the 1.30 should have a limited upside potential.

The Japanese yen, on the other hand, is better bid this morning. The USDJPY fell to 146 after the failure to clear the 150 offers last week. The Bank of Japan (BoJ) Governor Ueda will attend a special session in the Japanese parliament this week and will keep an accommodative tone. But the net speculative yen positions turned positive for the first time since March 2021 and big players are increasing bets that the BoJ will continue hiking the rates despite the sharp market reaction. The 150 level could act as a decent resistance to the USDJPY and keep the yen upbeat despite a cautious BoJ.

Elsewhere, the Fed rate cut bets sent gold to a fresh record last week, the yellow metal traded at $2500 per ounce, while oil hardly got a sentiment boost from improved market mood. The non-escalation of tensions in the Middle East and the sluggish Chinese data keep oil in the hands of the bears. US crude is trading near $76pb this morning, while Brent crude kicks off the week below $80pb mark.

Risk Warnings and Disclaimers

Add to Favorites

FED

Remarks of Officials

Central Bank

Recently, San Francisco Fed President Mary Daly, St. Louis Fed President Alberto Musalem, and Chicago Fed President Austan Goolsbee said in public speeches that inflation was steadily progressing towards the 2% target. They suggested that the time to consider an adjustment to moderately restrictive policy may be nearing.

San Francisco Fed President Daly:

Since the first quarter of the year, inflation has been inching closer to 2%. The Fed is more confident that the price level is getting more stable. It's time to consider adjusting interest rates from the current range of 5.25-5.5 percent.

The Fed wants to keep interest rates somewhat restrictive while easing policy, which requires a gradual approach to lowering borrowing costs in order to fully get the job done on inflation.

The U.S. labor market is slowing, but not weak. If the Fed does not adjust monetary policy to the progress of inflation and economic growth, it could lead to unintended consequences: Inflation out of control accompanied by an unstable labor market.

St. Louis Fed President Musalem:

Monetary policy is in a state of moderate tightness. Barring any further shocks, inflation appears to have returned to a trajectory consistent with the 2 percent target in the long run. Services and housing inflation remain somewhat stubborn, but recent data have strengthened confidence that inflation is coming down.

The labor market is no longer overheating and there are clear signs of cooling, with layoff levels remaining low. The balance of risks to inflation and the jobs market has changed and the job market no longer poses an upside risk to inflation.

Economic growth is gaining momentum and the data do not support a recessionary view, with GDP growth expected to be in the range of 1.5% to 2% in the second half of the year. Meanwhile, risks to the dual mandate appear to be more balanced, and the time to consider an adjustment to moderately restrictive policy may be nearing as future meetings approach.

Chicago Fed President Goolsbee:

Economic data have been both positive and somewhat worrisome. The labor market and some leading economic indicators are flashing warning signs that there is a risk of a sustained rise in the unemployment rate. The Fed's employment mandate could face challenges if the too-tight monetary policy stays for too long.

Keeping interest rates high while inflation falls is tantamount to tightening policy, and U.S. credit conditions are tight and still tightening. If the Fed were to make its policy less restrictive, it would ease some credit conditions.

Risk Warnings and Disclaimers

Add to Favorites

Danske Bank

Economic

In focus today

This week starts rather quietly on the data release front. The only event in our calendar is Fed’s Waller (voting member) speaking this afternoon.

The Democratic National Convention kicks off today, and Kamala Harris is expected to be elected as the democratic presidential candidate later in the week.

Early Tuesday, China will announce Loan Prime Rates which is part of the policy tool kit. However, since they cut rates last month, we expect rates to stay unchanged for now. However, more easing is expected later in Q3 as the economy is struggling and PBOC has been awaiting that the Fed would start easing before cutting rates (to avoid downward pressure on the renminbi).

Tuesday, we look out for the Riksbank rate decision, where we expect the central bank to deliver its second rate cut in 2024. On Wednesday, minutes of the Fed’s July meeting will be published. On Thursday, August flash PMIs are due for release from the euro area, US and UK. On Friday, markets will pay attention to Fed chair Powell’s speech at the annual Jackson Hole Economic Policy Symposium. Early on Friday, we will receive Japanese inflation data.

Economic and market news

What happened over night

In the US, Fed’s Daly (voting member) said that recent economic data has given her more confidence that inflation is under control, and that it is time to adjust interest rates from the current level. However, she mentioned that she would back a gradual decline, which sounds more like a 25bp rate cut, rather than a 50bp rate cut. Markets are sure that a rate cut will come in September, the only question is if it will be a 25bp or 50bp rate cut. We maintain our expectations for a 25bp rate cut.

At the end of last week Fed’s Goolsbee (voting member) spoke about monetary policy and said that “You don’t want to tighten any longer than you have to,” and “..the reason you’d want to tighten is if you’re afraid the economy is overheating, and this is not what an overheating economy looks like to me.” Goolsbee did not say if he would push for a rate cut at the September meeting.

What happened on Friday

In the US, consumer sentiment came in slightly higher than expected in August. This speaks into the shift in the narrative about the US economy from last week, with inflation pressures easing, while consumer spending is holding up, compared to early August after the weaker-than-expected jobs report.

Market movements

Equities: Global equities were higher on Friday and have risen for the seventh consecutive day. It is tempting to declare the full-blown equity recovery as complete. The MSCI World Index is nearly back to its peak levels from mid-July, and the VIX has dropped below 15. As previously mentioned, the speed and continuity of this recovery have been surprising for us. The next steps should be much tougher for equities, as an improved growth outlook will be required to push indexes higher from here. In the US on Friday, Dow +0.2%, S&P 500 +0.2%, Nasdaq +0.2%, and Russell 2000 +0.3%. Asian markets are mixed this morning, while both European and US futures are showing gains.

FI: We could be in for a new test of 3.8% level in 10Y US Treasuries as well as the 4% level in the 2Y Treasuries if the PMI data released this week confirms the slowdown and we have dovish comments from the Federal Reserv’’s Jackson Hole conference this week.

FX: The USD faced broad weakness against G10 currencies on Friday, with the NZD emerging as the top performer. Safe-haven currencies, JPY and CHF also strengthened. EUR/USD rose above the 1.10 mark.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Recent Searches

Top Searches

Markets

News

Analysis

User

24/7

Economic Calendar

Education

Data

Gold Prices Surge Past $2,500 Amid Weak Dollar and Fed Rate Cut Speculation

FX Daily: Exploring the Dollar’s Downside

USD: Price action is dollar negative

EUR: Rising tide of dollar bearishness lifts EUR/USD

GBP: Dollar weakness, plus M&A activity may be helping

CEE: The rally is done unless the payers return to rates markets