Gold prices experienced their largest intraday jump since August 19, climbing as much as 2.9% to surpass $4,500 an ounce. This rally was primarily driven by comments from Federal Reserve Governor Christopher Waller, who indicated that if inflation data continues to show cooling, he would be inclined to support holding interest rates steady at the upcoming Federal Open Market Committee meeting. This "less hawkish" stance from the Fed reduced market expectations for a September rate hike.
The prospect of fewer rate hikes led to a notable weakening of the U.S. dollar against the yen and other major currencies, making gold more affordable for international buyers. Additionally, Treasury yields, which had been at multi-year highs, pulled back significantly. For instance, the 10-year Treasury yield dropped to 4.77% from a peak of 4.81%, and the two-year yield eased to about 4.36%. Lower yields decrease the opportunity cost of holding non-yielding assets like gold, further bolstering its appeal.
Following Waller's remarks and softer labor market signals, the probability of a September rate hike, as priced by traders, decreased from approximately 62-67% earlier in the week to about 54%. This shift was also influenced by weaker-than-expected August private payrolls data, which showed an increase of only 38,000 against a forecast of 48,000, particularly with declines in manufacturing and professional services employment. However, the August jobs report (Non-Farm Payrolls) due on Friday and inflation data next week remain critical for further market direction. Spot gold was trading near $4,488.80 an ounce, up 2.28%, while U.S. gold futures for December delivery rose 2.3% to $4,517.40 per ounce.
Technically, gold bulls are now aiming to push prices above the $4,465 resistance level, with a sustained move potentially targeting $4,573. Conversely, bears would need to break below $4,369 to target deeper downsides at $4,301 and $4,263. Analysts like Bob Haberkorn from StoneX suggest that traders are now anticipating the Fed to be less aggressive with rates, possibly implementing only one more hike if any. The medium-term outlook for gold demand remains positive, supported by positive net flows into gold ETFs and continuous gold purchases by central banks, including the People's Bank of China (PBoC) which has been buying gold for 21 consecutive months.
