Gold prices plunged to one-month lows Wednesday after Federal Reserve Chair Jerome Powell dashed hopes for a September rate cut, with spot gold closing at $3,271.90/oz, a 1.6% daily drop that extends its retreat to 6.5% from April’s record high of $3,500.
As expected, the FOMC maintained rates at 4.25%-4.5% in a 10-2 vote, though dissents from Governors Bowman and Waller – who advocated for an immediate 25bps cut – revealed growing policy divisions. While acknowledging “moderated economic activity” in H1, Powell stressed during his press conference that “the labor market and consumer spending remain resilient, and the current policy stance remains appropriate.”
The hawkish tilt triggered a bullion selloff, with COMEX gold futures falling 1% to $3,345.3/oz. The $73 premium to spot prices reflected heightened physical market anxiety.
The Bureau of Economic Analysis’ advance Q2 GDP report showed 3% annualized growth – a dramatic reversal from Q1’s 0.5% contraction that trounced the 2.6% consensus. This came alongside July’s stronger-than-expected ADP employment gain of 187k.
“These numbers cement the soft-landing narrative and give the Fed cover to stay higher for longer,” noted WisdomTree commodity strategist Nitesh Shah.
CME’s FedWatch now prices just a 55.8% chance of September easing versus 60% pre-meeting. “Powell left himself optionality by calling tariff impacts transitory and affirming anchored inflation expectations,” observed Northlight Capital CIO Chris Zaccarelli.
Despite concerns over new 15% U.S. tariffs on EU/Japanese imports, Powell downplayed passthrough risks: “Many businesses may prove unable to fully offset these costs.” LPL Financial’s Jeffrey Roach maintained that “deteriorating data could still prompt 25bps in September.”
Shah highlighted an ironic dynamic: “The louder the administration criticizes Fed policy, the more it may ultimately support gold given the metal’s inverse rate sensitivity.”
Although the Trump administration’s 15% import tariffs on Japan and Europe have raised inflation concerns, Powell judged that firms may not be able to fully pass on the costs.
Jeffrey Roach, chief economist at LPL Financial, noted that “if the economic data deteriorates, the committee is still could cut rates by 25 basis points in September.”
Shah also emphasised that the stronger the US government’s current dissatisfaction with monetary policy is, the more likely it is to push gold prices higher instead, as gold usually outperforms in a low interest rate environment.
Analysts generally believe that gold lacks new catalyst factors in the short term. In the next few weeks, the U.S. non-farm payrolls data, the PCE inflation indicator, and data related to the actual transmission effect of tariffs could be key to influencing price action. Gold is likely to resume its uptrend when the market sees a clear crack in the US economy.
