In my last note, I mentioned that the key variable which would impact the gold price would be changes in U.S interest rates by the Fed. More specifically, whether the expectations of economic pundits would indeed be correct in betting on the Fed reducing the key Fed Funds rate in Q4 2024.

At that time, Fed chair Jerome Powell was set to deliver a speech at the Jackson Hole symposium which would provide insight into if and when this would indeed happen. Lower interest rates are bullish for the gold price because saving your money in ‘low risk’ money market instruments that pay interest rates linked to the Fed Funds rate are the alternative to treasuring your money in gold - the lower the rate, the lower the opportunity cost of owning gold, and vice versa.

At Jackson Hole, Powell remarked, “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks... with an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2 percent inflation while maintaining a strong labour market.”

Since then, the latest U.S inflation figures came in below expectations at 2.5% y-o-y for PCE, which means the Fed and traders will be looking at labour market data intensely as it comes out.

Gold has been on a tear despite high interest rates recently, notching a new record high over $2,500/oz. This paradoxical bull run during a period when rates were on the rise, has proven that there are other variables impacting the demand for gold.

Based on data from the World Gold Council, we know that strong retail demand in Asia and amongst global central banks, both using gold as the risk mitigator in their savings and reserves, means that there are now more tailwinds for the gold price, even as lower interest rates become a further boost.

Stonex Market Intelligence on 2 September stated in their note that, ‘There has been some light resale but in other areas there is some fresh interest in expectation of higher prices yet.’ Yes, the gold price has consolidated above $2,500/oz over the last fortnight on the back of healthy profit-taking, and was last seen trading at $2,495/oz.

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