Gold Shines Amid Expectations of Rate Cuts and Clouds of Doubt Over Federal Independence
Gold markets closed on Friday, August 29, with gains, achieving strong monthly profits supported by optimism regarding the Federal Reserve's potential interest rate cuts next month, while a rare legal battle looms regarding the independence of the U.S. central bank.
Spot gold rose by 0.7% to record about $3,442 per ounce, marking a monthly increase exceeding 4.5%. Futures contracts were not immune to this performance, gaining about 1.2% to reach $3,516.10. This performance comes at a time when the U.S. dollar is heading towards a monthly decline, enhancing the appeal of the yellow metal against holders of other currencies.
This rise is attributed to recent inflation data bolstering expectations for interest rate cuts, as non-yielding gold benefits from a low-interest-rate environment. Federal Reserve Governor Christopher Waller confirmed this trend by renewing his call for cost cuts, "emphasizing his support for a rate cut in September, while keeping the door open for further reductions."
In a tangled context, investors are assessing the impact of the legal battle ignited by President Trump in his attempt to dismiss bank governor Lisa Cook, who in turn filed a lawsuit "claiming that President Donald Trump lacks the legal authority to remove her." An emergency hearing was held to consider this matter, in an unprecedented move shaking market confidence in the independence of the U.S. monetary institution.
Despite this strong performance, some analysts believe that the upward path may face obstacles. Commerzbank noted in a memo: "Gold benefits from this uncertainty, as evidenced by inflows into gold exchange-traded funds, which reached just under 15 tons in the past two days. However, the chances of gold prices rising above $3,400 appear increasingly limited."
On the other hand, Wall Street is heading towards more optimism, as Bank of America raised its gold price forecasts for the next six years by 6% to reach $3,049, citing "the structural deficit in the United States and President Donald Trump's threats to the independence of the Federal Reserve."
The market seems to be moving towards cautious optimism, as traders _according to the "Fed Watch" tool_ see an 86% chance of a 25 basis point rate cut in the next meeting. Tim Waterer of KCM Trade concludes the picture by stating: "Gold remains one of the top investment havens ahead of a period expected to witness a cycle of U.S. monetary policy easing starting next month."
In a separate context, other precious metals showed mixed performance, with silver and platinum declining by 0.7% each, while palladium fell slightly by 0.1%.
