Gold prices surged more than 2% on Thursday after a senior Federal Reserve official signalled he would support keeping interest rates unchanged at the central bank’s September meeting, provided inflation continues to moderate. The move marked one of the sharpest daily gains for bullion in recent weeks and was reinforced by a pullback in Treasury yields and a softer US dollar.
What Waller said
Federal Reserve Governor Christopher Waller indicated that he is leaning towards holding the policy rate steady when the Federal Open Market Committee meets later this month. Waller’s comments were seen as dovish by markets because they lowered the probability of another quarter-point hike, which some traders had been pricing in after recent strong economic data.
Waller said that if inflation data continues to show progress toward the Fed’s 2% target, there is no need to raise rates further. His remarks were among the clearest signals yet from a Fed official that the central bank may be done tightening for now.
Market reaction
Traders responded by cutting bets on a September rate hike. Lower interest rate expectations tend to support gold because the metal pays no yield and competes with income-bearing assets. The shift also pulled US Treasury yields lower, reducing the opportunity cost of holding gold.
The US dollar index weakened against a basket of major currencies. A softer dollar makes gold, which is priced in dollars, cheaper for buyers using other currencies, adding to demand.
Spot gold was last quoted near $1,940 per troy ounce, having climbed from around $1,900 earlier in the session. One troy ounce is equivalent to 31.1035 grams.
What to watch next
Investors are now focused on upcoming US jobs data and inflation reports, which will shape expectations for the Fed’s next move. The August non-farm payrolls report and the consumer price index are both due in the coming weeks. If those figures show the labour market softening and price pressures easing, gold could find further support.
For the latest on bullion markets, see the live gold price.
Key takeaways
- Gold rose more than 2% after Fed Governor Waller signalled support for holding rates steady in September if inflation continues to cool.
- Lower Treasury yields and a weaker US dollar added to the rally.
- Traders reduced bets on a September rate hike following Waller’s comments.
- Markets are now awaiting US jobs and inflation data for further direction.
Common questions
Why did gold jump 2%?
Gold prices rose sharply after Federal Reserve Governor Christopher Waller indicated he would support keeping interest rates unchanged at the September meeting if inflation continues to moderate. This reduced expectations of a rate hike, which typically supports gold.
How do Fed rate decisions affect gold?
Higher interest rates increase the opportunity cost of holding gold, which does not pay interest or dividends. When the Fed signals it will hold rates steady or cut them, gold often becomes more attractive to investors.
What is the relationship between the dollar and gold?
Gold is priced in US dollars. When the dollar weakens, gold becomes cheaper for buyers using other currencies, which can boost demand and push prices higher.
Gold’s rally this week reflects a combination of shifting monetary policy expectations and favourable currency and yield dynamics. Whether the gains hold will depend on the data still to come.