Background on Jerome Powell and the Federal Reserve
Jerome Powell, the President of the Federal Reserve (Fed), is a key figure in U.S. monetary policy decisions. As the Fed’s chair since February 2018, Powell has been instrumental in shaping interest rate policies and guiding the U.S. economy through various challenges, including the COVID-19 pandemic. His upcoming speech is closely watched by investors worldwide, as it may provide insights into the Fed’s stance on interest rates and its approach to managing inflation.
Gold Prices Reach New Historical Highs
On Tuesday, gold prices reached new historical highs, driven by growing expectations of further interest rate cuts in the United States. Investors were eagerly awaiting Powell’s speech to gain insights into the Fed’s monetary policy direction.
- Spot gold increased by 1% to $3,784.01 per ounce at 4:11 a.m. CDMX time, peaking at a record high of $3,790.82 per ounce earlier in the session.
- U.S. gold futures for December delivery rose by 1.1% to $3,817.70 per ounce.
New Fed Board Member Stephen Miran Advocates for Aggressive Rate Cuts
Stephen Miran, a newly appointed member of the Federal Reserve Board, advocated for aggressive interest rate cuts on Monday. He argued that the Fed’s current monetary policy stance is misinterpreted and could jeopardize job market stability. However, three of his colleagues disagree, urging caution due to inflation concerns.
“Miran’s stance for an expansive policy undoubtedly increases expectations of larger rate cuts, as it appears the U.S. government is willing to push for this change, which is positive for gold,” said independent analyst Ross Norman.
Market Expectations for Interest Rate Cuts
According to the FedWatch tool by CME, investors anticipate two 25-basis-point rate cuts: one in October and another in December, with probabilities of 90% and 73%, respectively.
Gold, which does not pay interest, typically performs well in low-interest-rate environments.
“There’s strong demand for gold from institutional investors who might be divesting from equity markets as they reach new highs, along with robust demand from India,” added Norman.
Indian Gold Demand and Other Precious Metals
This week, Indian physical gold premiums hit their highest level in ten months, as near-record prices failed to deter investors from purchasing bars anticipating further gains.
Norman also noted that short-term gold prices depend on sustained Indian demand, a potential rebound in Chinese purchases, and whether increased ETF holdings prove lasting.
- SPDR Gold Trust, the world’s largest gold ETF, reported a 0.60% increase in holdings to 1,000.57 tonnes, a three-year high reached on Monday from Friday’s close.
- Among other precious metals, silver gained 0.4% to $44.24 per ounce, nearing 14-year highs.
- Platinum added 1.5% to $1,437.56 per ounce.
- Palladium climbed 1.9% to $1,201 per ounce.
Key Questions and Answers
- Who is Jerome Powell? Jerome Powell is the President of the Federal Reserve, a key figure in U.S. monetary policy decisions.
- What are the expectations for interest rate cuts? Investors anticipate two 25-basis-point rate cuts, one in October and another in December, with probabilities of 90% and 73%, respectively.
- Why is gold performing well? Gold typically performs well in low-interest-rate environments, and growing expectations of further U.S. interest rate cuts have driven gold prices to new highs.
- What is the significance of Stephen Miran’s appointment? As a newly appointed member of the Federal Reserve Board, Miran’s advocacy for aggressive rate cuts has increased market expectations of larger interest rate reductions.
- What is the impact of Indian gold demand? Strong demand for gold from institutional investors and robust demand from India have contributed to the rally in gold prices.
