Fed "doves" move to extinguish rate hike sparks, gold stabilizes at $4000, reflecting a repricing of the interest rate path

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Federal Reserve Chairman Walsh sent signals less hawkish than the market expected, dampening speculation of rate hikes within the year. Gold immediately extended its rebound, regaining its footing above $4,000 per ounce.

On Thursday, spot gold rose 0.66% to $4,057 per ounce, ending a two-day losing streak. The strength in gold led to rebounds in other precious metals as well, with silver at $59.74 per ounce and both platinum and palladium also rising. Meanwhile, the Bloomberg Dollar Spot Index remained virtually unchanged.

At the ECB Forum in Portugal on Wednesday, Walsh stated that inflation risks have eased, while reaffirming the Fed's commitment to achieving price stability and to bringing inflation back to its 2% target. His remarks alleviated market concerns that the Fed might raise rates due to rising energy prices and inflation indicators.

For gold, the repricing of the interest rate path is a key variable. Higher borrowing costs are typically unfavorable for gold, which does not generate yield, but Walsh did not further strengthen rate hike expectations, thus providing short-term support for the precious metals market.

Rate Hike Expectations Cool, Gold Gets a Breather

The direct trigger for this round of gold's rebound was that Walsh's comments were not as hawkish as the market had feared. Previously, the war in Iran pushed up energy prices and brought inflation indicators under scrutiny, leading to speculation that the Fed might raise rates this year to counter inflationary pressures.

Walsh's statements did not relax his anti-inflation stance. He reiterated the message he shared at his first press conference as Fed Chair last month—that the central bank will keep its promise of price stability and bring inflation back to 2%. However, compared to prior market concerns, he did not signal a tougher policy stance.

Pepperstone Group Ltd. analyst Ahmad Assiri said this market sentiment remains a net positive for gold. However, he also pointed out that the dollar remains relatively strong and U.S. Treasury yields have already recovered most of their earlier losses.

This shows that investors have not fully confirmed Walsh's policy inclinations. Ahmad Assiri stated that the market still "cannot clearly grasp Walsh's outlook" because he refuses to provide forward guidance.

Diverging U.S. Data, Nonfarm Payrolls to Provide Next Clue

The latest U.S. economic data presents mixed signals. Manufacturing activity in June expanded for a sixth consecutive month, though the pace of expansion slowed, indicating that economic momentum is not evenly spread.

Meanwhile, private sector job growth remained robust, making the past three months the best period for hiring performance in over a year. The resilience of the labor market could impact how markets view the Fed's policy path going forward.

The nonfarm payrolls data to be released on Thursday will provide investors with further clues. If employment remains strong, markets may reassess risks around inflation and interest rates; if the data weakens, the logic for rate support for gold could be reinforced.

Risk warning and disclaimerThere are risks in the market, investment should be done with caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of any particular user. Users should consider whether any opinions, views, or conclusions in this article are appropriate for their individual circumstances. Investments made based on this information are at your own risk. ```