Gold gets Fed boost after Powell flags rate cut amid global risk

[SINGAPORE] Gold is holding to this week's gains after the US Federal Reserve indicated that it's preparing to cut interest rates for the first time in a decade as the global economy slows.

Bullion is trading above US$1,400 an ounce again as the US dollar weakens and investors take note of the Fed's dovishness, damping doubts over monetary policy easing that arose following stronger-than-expected US payrolls data. Speaking to Congress on Wednesday, Chairman Jerome Powell said June's jobs report was "great news", but not enough to tilt the balance because wages weren't rising fast enough to trigger much inflation.

Exchange-traded funds backed by the precious metal also received a boost, with holdings rising to 2,311.3 tonnes as of Wednesday, the highest level since 2013.

Gold pared earlier gains, yet was still trading near a six-year high reached in June as Mr Powell is set to continue with his testimony later Thursday, this time before the Senate Banking Committee. Also on investors' watch list is data on US inflation scheduled for release Thursday.

"Although there will be a few bumps on the way given the level of skepticism in the first gold rally cycle, we think there will be an even greater rush for gold in the coming weeks and months," Stephen Innes, managing partner at Vanguard Markets, said in a note. "Gold prices could stay on an upward path as central banks pivot to an easing stance, the US dollar turns gradually weaker with a more dovish Fed and the burden of harmful yielding debt rises."

Spot gold climbed as much as 0.6 per cent, and was little changed at US$1,419.80 an ounce by 1.10pm in London. The Bloomberg Dollar Spot Index dropped 0.2 per cent.

The recent gains in gold are likely to be sustained with financial market uncertainty and accommodative monetary policy seen supporting gold investment demand over the next six to 12 months, the World Gold Council said in its mid-year outlook report. The U.S. dollar may remain rangebound as trade tensions and lower rates offset continued economic growth.

In other precious metals, spot silver and platinum also gained. Palladium edged lower, but was still trading near an all-time high reached in March.

BLOOMBERG