July 10, 2019 / 5:03 AM / 2 months ago

Gold rises after Powell's remarks bolster rate cut hopes, hurt dollar

(Reuters) - Gold prices recouped losses to rise over 1% on Wednesday as the dollar slid after U.S. Federal Reserve Chairman Jerome Powell fanned expectations of an interest rate cut, citing risks to the U.S. economy.

Powell said concerns about trade policy and a weak global economy “continue to weigh on the U.S. economic outlook” and the Fed intended to “act as appropriate” to sustain a decade-long expansion.

Spot gold rose 1% to $1,411.08 per ounce as of 1:19 pm ET (1719 GMT), having made its way to a high of $1,412.60 an ounce. Prices had dropped to $1,389.55 earlier in the session.

U.S. gold futures for August delivery rose 0.9% to $1,413.30 per ounce.

“Over the past four days we had gold pulling in from a high. Powell’s comments on trade war adding uncertainties in the U.S. economy left doors open for a rate cut, giving investors an opportunity to buy gold when it was seeking a support,” said Michael Matousek, head trader at U.S. Global Investors.

Although expectations for a 50-basis-point rate cut at a Fed meeting later this month have evaporated after forecast-beating job gains were reported last week, investors still expect a 25-basis-point cut.

“But now, there is chatter in the market about a little bigger rate cut than that, which has fueled some animal spirit in the gold market,” Matousek said.

Powell’s comments also prompted the dollar index to decline as much as 0.4% against a basket of other currencies. [USD/]

“We still think there are upside risks, and dips towards $1,375 and below $1,375 are an opportunity to go long in gold,” said Suki Cooper, precious metals analyst at Standard Chartered Bank.

“The macro factors are still supportive (of gold) but the near term headwinds are likely to come from weaker physical markets and any temporary bouts of dollar strength or a bounce in yields.”

On the trade war front, U.S. and Chinese trade officials held “constructive” talks on trade by phone on Tuesday, White House economic adviser Larry Kudlow said on Tuesday.

Other precious metals also rose, with silver up 0.7% at $15.20 per ounce, and platinum gained 1.9% to $821.00 per ounce.

Palladium was 2.9% higher at $1,591.50 per ounce, having hit $1,598 earlier in the session, its highest since March 22.

“The whole commodities market is up, but besides that Chevron Phillips Chemical made a $8 billion deal on Tuesday to develop a petrochemical plant in Qatar, which is providing boost to palladium,” Matousek added.

Palladium is used as an agent to reduce the effect of harmful emissions from petrochemical plants.

Reporting by Eileen Soreng and Karthika Suresh Namboothiri in Bengaluru; Editing by Susan Thomas and Chizu Nomiyama

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