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Gold futures finished higher for the week, but well off its multi-year high as investors reduced the chances of a 50 basis point interest rate cut by the Federal Reserve in late July after two central bank officials failed to confirm the need for an aggressive cut. The news drove Treasury yields higher, making the U.S. Dollar a more attractive asset and reducing demand for dollar-denominated gold.
Last week, August Comex gold settled at $1413.70, up $13.60 or +0.97%.
Given the outcome of the events over the weekend at the G-20 summit in Osaka, Japan, it looks as if gold investors will have some serious decisions to make especially if Treasury yields spike higher on the news.
Last Week’s Key Event
The key event that most attribute to the sharp reversal to the downside in gold last week were comments from Federal Reserve Chairman Jerome Powell and St. Louis Federal Reserve President James Bullard on June 25, which dampened hopes by some investors that Fed policymakers would deliver a half-point interest rate cut in July.
Powell held close to his comments from the previous week after the Fed’s June interest rate decision and release of its monetary policy statement, saying that while there is greater uncertainty about trade and worries about the global economy, policymakers don’t know how long this may last or how serious the drag might be. Traders read this to mean that Powell was not endorsing the 50 basis point rate cut that the markets had been pricing in.
“The question my colleagues and I are grappling with is whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation,” Powell said in brief remarks ahead of a moderated discussion at the Council on Foreign Relations in New York.
Bullard, who was the lone dissenter from the Fed decision to hold rates steady at its June meeting, reiterated that he thought a quarter-point rate cut would be a wise “insurance” move. However, he also didn’t endorse a half-point rate cut.
“I think 50 basis points would be overdone,” Bullard said on Bloomberg Television.
The comments encouraged 10-year Treasury note investors to book profits after a spectacular rally. Since note prices run inverse to yields, the action drove Treasury yields higher, dragging up the U.S. Dollar and pushing down gold prices.
Weekly Forecast
In a move that should have a major impact on the financial markets on Monday, U.S. President Donald Trump and Chinese President Xi Jinping agreed on Saturday at their meeting at the G-20 summit in Osaka, Japan, to proceed with trade negotiations.