While geopolitical tensions in the Middle East continue to support demand for safe havens such as gold, upside potential remains limited due to growing risk appetite and a stronger dollar. However, expectations of a significant Fed rate cut in November provide some underlying support for gold.
Impact of US economic developments and Fed expectations on gold prices
Strong economic data and a cautious tone from top Federal Reserve officials pushed the U.S. dollar (USD) higher on Thursday, limiting gold’s potential gains. Fed Governor Michelle Bowman and Atlanta Fed President Raphael Bostic argued against rushing through aggressive rate cuts, citing concerns about the persistence of inflation.
“Risks to inflation remain high, and we should be cautious about easing policy prematurely,” Bowman said.
However, other Federal Reserve officials, including Governor Lisa Cook, have expressed support for a 50 basis point cut, noting that inflation risks have declined and employment concerns are rising.
According to the FedWatch tool from CME Groupthe probability of a 50 basis point rate cut at the Fed meeting in November has risen to more than 50%.
US data offers mixed signals
The latest US economic data showed GDP grew 3% in the second quarter, while durable goods orders stagnated in August, sending mixed signals about the strength of the economy.