(Kitco News, Thurs. July 27th, 2023) – The gold market is holding on to solid gains as the Federal Reserve is playing its cards close to its chest, saying that future monetary policy will continue to depend on data.
In the press conference following the central bank’s decision to raise interest rates by 25 basis points, Powell said that at this point, the committee is just as likely to raise interest rates in September as it would be to keep them unchanged.
However, he also reiterated his stance that the central bank is not looking at any rate cuts this year.
“We need to stay on task and hold policy at restrictive levels for some time,” he said. “The process still has a long way to go.”
The gold market was immune to Powell’s neutral comments as it holds near session highs. August gold futures last traded at $1,974.20 an ounce, up 0.53% on the day. Some analysts said that goldgold held its gains as some investors expected a more hawkish bias at the press conference.
Powell said that for the central bank even to consider cutting interest rates, it would need to see a credible and sustainable drop in inflation. He added that while consumer prices dropped sharply in June, it is just one report. His message for markets was clear: the Federal Reserve needs to see more data.
“Many people wrote down rate cuts for next year, but that will be a judgment we will have to make next year,” he said.
While the U.S. central bank keeps its options open, many economists and market analysts expect that this will prove to be the last rate hike in this tightening cycle.
Thorsten Polleit, chief economist at Degussa, said that the drop in money supply and tightening lending conditions in the U.S. means that inflation will likely continue to slow. He added that he expects slower economic growth to keep the Fed on the sidelines.
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“The very restrictive monetary environment suggests a slowdown in the economy, perhaps even an impending recession – because the US economy can no longer stand high interest rates, to put it bluntly, any longer,” he said. “From this point of view, it seems quite likely to us that the high in the current interest rate cycle could have been reached – and that the next rate hike will be down.”
Edward Moya, senior market analyst at OANDA, said that although the Federal Reserve is keeping its options open, it’s unlikely they will raise interest rates again.
“The disinflation process will remain as the economy is weakening and the corporate world should start feeling the impact of tighter credit conditions,” he said.
As for the impact on gold, Moya said that prices could remain range bound until November.
“The Fed will probably see no change with rates in September, and when the market is confident that November will be a pause, then gold might break out higher,” he said.
Posted by:
Jack Dempsey, President
401 Gold Consultants LLC
jdemp2003@gmail.com