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Gold Futures Rise as Powell Remains Cautious on Rate Cut Timing

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Federal Reserve Chairman Jerome Powell's recent testimony provided little insight into the timing of potential interest rate cuts, leading to a modest gain in gold futures. Powell's remarks, spanning two days of testimony, emphasized the Fed's data-dependent approach and the need for more evidence of sustained inflation reduction before initiating rate cuts.

Powell expressed optimism about the U.S. economy achieving a "soft landing," where inflation targets are met without significantly increasing unemployment. This scenario, once deemed improbable when inflation peaked at a 40-year high in 2022, now appears more feasible. However, Powell remained cautious, stating he was not yet prepared to confirm inflation's sustainable downward trajectory to the Fed's 2% target.

The Chairman's testimony highlighted the Fed's commitment to making decisions based on incoming economic data. While acknowledging inflation's decline from recent highs, Powell emphasized the need for further progress before considering rate cuts. He refrained from providing specifics on the timing or number of potential rate reductions this year.

Investors have now shifted their focus to upcoming inflation reports. The June Consumer Price Index (CPI) report, due Thursday, is expected to show inflation continuing to decline to an annualized rate of 3.1%, down from May's 3.3%. Friday's Producer Price Index (PPI) report is anticipated to reveal a slight increase of 0.2% for June, up from May's 0.1% rise.

Powell's cautious stance and expectations of cooling inflation have contributed to a weakening dollar index. The CME's FedWatch tool indicates a 95.3% probability that the Fed will maintain current interest rates at this month's FOMC meeting. However, there's a 73.3% chance of a rate cut at the September meeting, with a 70% likelihood of a quarter-point reduction and a 3.3% possibility of a half-point cut.

The dollar index dipped 0.11% to 104.994, while gold futures for August delivery rose by $11.80 or 0.50%, reaching $2,379.70. This uptick in gold prices reflects investors' response to Powell's testimony and the anticipated inflation data.

As the market digests Powell's remarks and awaits crucial economic reports, the precious metals sector remains sensitive to shifts in monetary policy expectations and inflation trends. The coming days will be critical in shaping market sentiment and potentially influencing the Fed's future decisions on interest rates.

Wishing you as always good trading,

Gary S. Wagner - Executive Producer