Aakash Doshi stated that the gold market is reacting to discussions about a possible rate cut by the Federal Reserve of 25 or 50 basis points on September 18. Jeffrey Roach, chief economist at LPL Financial, mentioned that although the labor market is stable and the hiring growth rate is slowing, the Federal Reserve might opt for a 25 basis point rate cut to allow room for future actions.
The slower than expected job growth in August may reflect seasonal factors, as August data are often revised upward. Economists at Goldman Sachs pointed out that August employment figures might underestimate actual job growth.
According to the CME FedWatch Tool, the market sees a 71% probability of a 25 basis point rate cut by the Federal Reserve this month and a 29% probability of a 50 basis point cut. After the release of the non-farm payroll data, the market's expectation for a 50 basis point cut briefly surged above 50% but then receded.
The Federal Reserve's "Number Three" official, New York Fed Chairman Williams, stated that economic balance allows room for a rate cut, but the specific rate cut extent will depend on economic performance. Last Friday, the U.S. dollar rose during volatile trading, reaching a high of 101.40 and closing at 101.18, up by approximately 0.13%.
Due to the decline in new job numbers and comments from Waller, the yield on the U.S. 10-year Treasury fell to a 15-month low last Friday, providing support for gold prices. The yield on the two-year Treasury dropped to its lowest point since March 2023.
This week, investors will focus on the U.S. August CPI data and the European Central Bank's rate decision. The market expects the August CPI to drop to 2.6% year-over-year, with the core inflation rate remaining at 3.2%. If the data confirms this, the Federal Reserve is more likely to implement a 25 basis point rate cut, while a 50 basis point cut would require a significant downside surprise. Meanwhile, the European Central Bank is expected to cut rates by 25 basis points, which could support gold prices.
