Gold prices soared on Thursday after Federal Reserve Chair Jerome Powell entertained the possibility of cutting interest rates as soon as September, provided inflation continues to cool.
Spot gold jumped 1.2% to $2,437.39 per ounce and posted its largest monthly gain since March before easing by 0.07% to $2,445.77 per ounce. Gold futures expiring in December climbed 0.64% to $2,488.80 per ounce.
Prices of the yellow metal also hit a two-week high in Asian trade on the increased risk of an all-out war between Israel and Palestine’s Hamas.
The military group alleged on Wednesday that an Israeli-guided airstrike at the residence of their political leader, Ismail Haniyeh, in the Iranian capital of Tehran, resulted in his death.
Haniyeh was the second significant figure of an Iran-backed group killed in the past few days after Israel’s attack in the Lebanese capital of Beirut led to the death of senior Hezbollah commander Fuad Shukr.
Israel has yet to comment on Haniyeh’s assassination, but Israeli Prime Minister Benjamin Netanyahu has said they plan to continue the fight and that the country is “ready for any scenario.”
Powell Opens Door for Early Interest Rate Cut
Prospects for a September rate cut strengthened on Wednesday as Powell welcomed the notion if the US economy stays in line with expectations.
The Fed Chair’s remarks signaled an imminent end to the more than two-year rate hike cycle but might put the central bank at a disadvantage ahead of the 2024 presidential elections in November.
Trimming interest rates could support the economy and may lead voters to favor the incumbent political party, which, as of this year, is the Democratic Party.
At the end of its two-day policy meeting, the Fed left the key interest rate unchanged at 5.25%-5.50%, as widely anticipated. It stated that US employment was now on a level with higher prices, introducing the possibility of lower rates after over two years of tight credit.
Still, Powell clarified that 50 basis points (bps) were not on the table for their first rate reduction.
Potential rate cuts plus ongoing geopolitical tensions in the Middle East might drive gold prices up the $2,700 threshold, but it is uncertain whether the safe-haven asset could hit fresh all-time highs, considering the central bank has only recently met expectations.
Gold’s upside may also be curbed as investors’ focus shifted to the release of US nonfarm payrolls data on Friday, which is seen dropping to 177,000 in July from June’s reading of a 206,000 increase.