Gold prices dipped under the $2500 mark on Thursday as markets braced for Federal Reserve Chair Jerome Powell’s upcoming speech at Jackson Hole, anticipating clues on potential rate cuts.
This decline comes after the Fed’s July meeting minutes hinted at a possible easing of monetary policy in September, with most officials supporting a cut if economic conditions align.
Despite holding rates at a 23-year high of 5.25% to 5.50%, the Fed’s tone suggested a shift might be on the horizon.
Yet, the certainty of a September cut has wavered.
The CME’s FedWatch tool showed the likelihood of a 0.5% reduction slipping to 28.5% on Thursday, down from 38% the previous day.
In response, spot gold fell 0.8% to $2491 per ounce by Thursday afternoon, marking a 1.6% drop from its recent peak of $2531.
Gold remains up over 20% since the start of the year, even as the dollar has softened by nearly 1% in the same timeframe.
The Dollar Index, which tracks the greenback against major currencies, saw a modest recovery after hitting its lowest point this year.
Meanwhile, U.S. Treasury yields climbed, signaling a market recalibration ahead of Powell’s remarks.
This shift in sentiment underscores the fragility of gold’s rally, which, according to Saxo Bank, might face consolidation or even correction.
Saxo Bank’s Strategy Team noted that gold’s recent rally to record highs is showing signs of exhaustion.
This comes as the market’s reaction to weaker U.S. job growth and FOMC minutes, which nearly confirmed a September rate cut, has been muted.
Adding to the pressure on gold, demand from China—a key market—remains weak.
July saw gold imports into China fall by 24% to 44.6 tonnes, the lowest in over two years, following a 57% plunge in June.
The decline in imports correlates with a reduced gold price premium in the Chinese market, which has dampened importer interest.
The Shanghai Gold Exchange premium over London dropped sharply in July, averaging $12 per ounce, down from $28 in June.
August has seen this premium shrink further, turning into a discount of $9 this week as domestic gold prices approached their all-time high in Yuan.
Silver, too, faced headwinds. Prices in China, the world’s top silver consumer, maintained a historical premium over London, though this premium has been shrinking.
The grey metal has risen 25% in China this year, outpacing London’s 23% increase. On Thursday, silver prices in London slipped 0.7% to £24.90 per ounce.
European markets echoed this trend. Gold prices in Euros dipped 0.6% to €2238, while UK gold fell 1.0% to £1899 per ounce.
The European Central Bank’s (ECB) minutes, released Thursday, highlighted the need for cautious policy amid rising underlying inflation, with prices expected to remain above the 2% target well into 2025.
In its last meeting, the ECB kept its main interest rate steady at 3.75%.
As markets await Powell’s insights, the tension between gold’s traditional safe-haven appeal and the shifting economic landscape continues to unfold, much like a tightrope walk with no clear end.
This uncertainty can mean navigating a challenging financial environment for businesses, where strategic decisions hinge on the latest economic signals.
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