Key points:

  • Despite recent growth, gold prices haven’t reached new record highs.
  • Investors are cautiously assessing the prospects for further price increases, considering recent statements from the Federal Reserve and awaiting new labor market data.
  • Slower pace of interest rate cuts may reduce gold’s appeal to investors.

On Tuesday, gold prices remained below recent peak levels after the head of the U.S. Federal Reserve downplayed expectations for significant interest rate cuts this year. Investors are focusing on upcoming labor market data, which may provide further insight.

Powell’s statement: the Fed is ready to cut rates by a quarter point

As of now, the spot price of gold shows a moderate increase of 0.3%, reaching $2,641.33 per ounce. However, the precious metal has not surpassed the record high of $2,685.42, set last Thursday. Meanwhile, U.S. gold futures also showed positive dynamics, rising by 0.2% to $2,663.10.

On Monday, Federal Reserve Chairman Jerome Powell hinted at the possibility of continuing monetary easing by further cutting interest rates by a quarter of a percentage point. This forecast is based on the latest economic data, which indicates continued positive economic growth and consumer spending.

Market analysts believe that upcoming speeches by Federal Reserve officials will be key in shaping investors’ expectations regarding future monetary policy. In particular, emphasis will be placed on confirming the Fed’s data-dependent approach. According to the CME FedWatch tool, the probability of a 25-basis-point rate cut in November has significantly increased and is currently estimated at around 62%.

It is worth noting that gold is traditionally viewed by investors as a safe-haven asset during times of uncertainty and inflation. However, during periods of low interest rates, the appeal of gold may decrease due to its lack of yield. Nevertheless, amid the current macroeconomic situation and monetary easing, gold continues to show positive dynamics. For instance, in the last quarter, gold bars posted their best growth since 2020, which is associated with the start of the Fed’s rate-cutting cycle during the September meeting.

Employment data – this week’s key driver

Analyzing the upcoming U.S. labor market data suggests that any results weaker than expected could increase expectations for more aggressive monetary easing by the Federal Reserve. This scenario, in turn, would provide additional support to gold prices.

This week, investors are closely monitoring private sector employment data (ADP) and the U.S. nonfarm payroll report. These indicators are expected to provide a more detailed picture of the labor market’s condition. Additionally, speeches by Federal Reserve officials and data on U.S. job vacancies will also have a significant impact on market sentiment.

Despite the substantial rise in gold prices recently, Goldman Sachs analysts point out several factors that could cap further growth of the precious metal. These include reduced demand for gold from central banks due to easing geopolitical tensions, decreased inflows into gold mining funds (ETFs) amid a less aggressive pace of interest rate cuts, and a decline in retail demand in China.

In the market for other precious metals, there has been mixed performance. The spot price of silver rose by 0.7% to $31.36 per ounce, platinum gained 0.9% to reach $984.95, while palladium prices remained largely unchanged at $1,000.