Gold clings to its gains as a haven after Powell’s hawkish speech

The price of gold held onto its recent gains as trading began on Thursday at $1,976 per ounce after the Federal Reserve’s decision yesterday, which was entirely in line with expectations, to raise interest rates by 25 basis points. However, during Powell’s press conference following the meeting, his tone was more hawkish and diverged from expectations, especially when he stated that future monetary policy would continue to rely on data and economic figures. He also reiterated his stance that the Federal Reserve does not contemplate any interest rate cuts this year.

Gold prices moved cautiously during Powell’s hawkish remarks, stabilizing near the day’s high around $1,978 per ounce, representing an increase of approximately 0.53% since yesterday. Gold seemed to preserve its gains as a haven, supported by the expectations of some market investors for continued tightening by the Federal Reserve or at least maintaining interest rates at elevated levels for an extended period, increasing the likelihood of a recession. This, in turn, boosts gold as a haven for investors and traders during times of crisis.

Powell mentioned that for the Federal Reserve to consider cutting interest rates, it would need to see a reliable and sustained decline in inflation rates. While consumer price figures sharply declined in June, he couldn’t rely on just one report to assume a continued decline in inflation. His message to the markets was clear: the Federal Reserve needs to see more data confirming a consistent slowdown in inflation.

While the U.S. central bank keeps its options open, it is expected that this will be the last interest rate hike in the current tightening cycle. The reduction in the money supply, tighter lending conditions, and maintaining high-interest rates for an extended period in the United States indicate that inflation is likely to continue slowing down. A slowdown in economic growth is also expected due to the Federal Reserve’s commitment to raising interest rates if necessary.

Such a tight monetary environment always indicates an economic slowdown and possibly an imminent recession, as the U.S. economy can no longer withstand higher interest rates for an extended period. Although the Federal Reserve keeps its future options open, it is unlikely to raise interest rates again this year.

As measures to reduce inflation persist, they will weaken the economy, causing companies to feel the impact of stricter credit conditions. Until this happens, gold prices are likely to remain confined in the range between $1,980 and $1,950 until November. It is also possible that the Federal Reserve will not make any changes to interest rates at the next meeting in September, which could support a rise in gold prices, potentially reaching an all-time high in the medium term around $2,080 to $2,100.