Mubasher: Gold hit more than one-week high on Thursday, as the dollar retreated, as the dovish tone struck by the US Federal Reserve Chairman Jerome Powell built the case for an interest rate cut later this month, Reuters reported.
By 9:02 am GMT, spot gold rose by 0.29% to $1,423.09 per ounce, having hit $1,426 per ounce, its highest since 3 July, while US gold futures climbed by 0.94% to $1,425.80 per ounce.
In his Congressional testimony, Powell highlighted “broad” global weakness that was weighing on the US economic outlook amid uncertainty about the impact of President Donald Trump’s trade conflict with China and other trade allies.
The Fed boss’ view of the US economy helped raising once again wagers on heftier monetary loosening at the next rate-setting meeting on 30 and 31 July.
In response, the dollar fell to a five-day trough, as the US Treasury yield curve took a sharp downward turn.
At 9:04 am GMT, the US dollar index, which tracks the greenback against six major rivals, fell by 0.19% to 96.92.
It is worth noting that the lower interest rates get, the cheaper gold gets for holders of non-US currencies and the more the dollar weakens, as they tend to reduce the opportunity cost of holding the non-yielding metal.
In addition, the dovish tone was also manifested in the minutes from the Fed’s previous policy meeting, which reflected the policymakers’ view that more stimulus would be required soon, rekindling expectations of an aggressive rate cut.
Prospects of cutting borrowing costs also drove investors towards riskier assets, as the S&P 500 surpassed the 3,000-point mark.
“When we see this correlation where gold is going up and equity markets are also going higher this is very bullish signal for gold,” Vanguard Markets managing partner Stephen Innes was quoted by Reuters.