Gold prices have found support and are edging higher, reaching a two-week high near $3,385 during the early European trading hours on Tuesday. The primary drivers of this recent price increase stem from concerns surrounding the US Federal Reserve’s (Fed) independence, following the announcement that President Donald Trump is removing Fed Governor Lisa Cook. Additionally, the ongoing speculation about the US central bank’s potential interest rate cuts in the near future continues to buoy the precious metal.
Impact of Political Uncertainty on Gold’s Price
The political uncertainty created by President Trump’s actions against the Federal Reserve has injected a level of risk into the market, increasing demand for safe-haven assets like gold. The news of Trump’s attempt to remove Fed Governor Lisa Cook is adding to the ongoing tensions surrounding the independence of the Fed. Trump’s actions have reignited debates over the central bank’s autonomy, adding to market unease.
Trump’s letter to Cook, posted on his social media platform, Truth Social, outlined allegations of mortgage fraud as the cause for her removal. While Cook has publicly denied any wrongdoing, asserting she would continue fulfilling her duties, the situation is contributing to heightened political risk in the market, pushing traders towards gold as a safe investment option.
Rate-Cut Expectations and Gold’s Response
In addition to the political backdrop, gold’s rise is also fueled by market expectations that the Fed will resume cutting interest rates. Fed Chair Jerome Powell’s dovish tone during his Jackson Hole speech last Friday has strengthened these expectations. Powell hinted at the potential for rate cuts in September, driven by rising risks to the labor market, while also acknowledging that inflation remains a concern. As a non-yielding asset, gold becomes more attractive in a low-rate environment, as reduced rates lower the opportunity cost of holding the precious metal.
Currently, markets are pricing in an 84.3% chance that the Fed will cut rates by at least 25 basis points in the upcoming September policy meeting, according to CME’s FedWatch tool. This represents a slight decrease from the 84.7% expectation seen in the previous session but is still a marked improvement compared to the 61.9% probability a month ago. A rate cut would be supportive for gold, which could see further gains if the Fed moves ahead with a reduction.
Key Data Releases and Gold’s Near-Term Prospects
This week, traders will focus on several key economic reports, including the US Conference Board’s Consumer Confidence, Durable Goods Orders, and Richmond Fed Manufacturing Index reports, scheduled for release on Tuesday. Additionally, traders are anticipating the second-quarter US Gross Domestic Product (GDP) report, as well as the Personal Consumption Expenditures (PCE) Price Index for July, the Fed’s preferred measure of inflation. Any signs of stronger-than-expected growth or inflation data could boost the US Dollar (USD) and weigh on the gold price. Conversely, weaker-than-expected results could increase the likelihood of a rate cut, further supporting gold’s bullish outlook.
The combination of political uncertainty, expectations of a rate cut, and global geopolitical risks contributes to the positive sentiment around gold. As long as gold holds above key support levels, it is likely to continue its bullish trend, driven by the ongoing demand for safe-haven assets.
Gold Technical Analysis: Key Levels to Watch
On the daily chart, gold maintains a positive outlook as it holds above the 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI), which stands above the neutral midline at 55, further supports the bullish momentum in the near term.
Looking at the resistance levels, the immediate target for gold lies in the $3,400–$3,410 range. A break above this level would open the door for further gains, with the next resistance zone located around $3,439, which corresponds to the high of July 23. If gold continues to gain momentum, it could challenge the $3,500 mark, a psychological level and the high observed on April 22.
On the downside, if the price retreats, the first support level is located at $3,325, the low of August 21. A break below this could lead to further downside, with support at $3,285, the lower boundary of the Bollinger Band. The critical level to monitor would be the $3,270 zone, where the 100-day EMA sits.
Silver Price Outlook: Strong Correlation with Gold
Silver prices have also been supported by the same drivers as gold. The price of silver has risen in tandem with gold, benefiting from the same market conditions. Silver is currently trading at $38.80 per ounce, gaining momentum alongside gold as the demand for safe-haven assets remains elevated.
However, silver’s performance is often more volatile than gold’s, making it susceptible to sharper fluctuations. The key levels to watch for silver include the $39.00 region, which has acted as a psychological resistance level. A breakthrough above this level would set silver on a path toward higher targets, with $42.00 being a significant next hurdle.
In the short term, the dynamics of silver’s price will closely follow the moves in gold. A sustained bullish trend in gold will likely support silver’s upward movement, especially given silver’s role as both an industrial and precious metal. Investors looking for an alternative to gold may turn to silver, especially in light of its more affordable price and strong industrial demand, which is expected to rise with the growing use of silver in renewable energy technologies.
Political Pressures and Their Impact on Fed Policy
The political landscape surrounding the Fed continues to be a key factor for gold’s outlook. Trump’s ongoing criticism of the Fed, coupled with calls for rate cuts, is creating additional uncertainty. The potential removal of Fed Governor Lisa Cook only adds to this uncertainty, highlighting the tension between the central bank’s autonomy and political pressures.
While Powell’s dovish stance may support gold in the short term, the evolving political situation could continue to exert influence on the Fed’s decisions. As the Fed navigates these pressures, gold remains well-positioned to benefit from the ongoing demand for safe-haven assets.
Conclusion: Gold’s Bullish Trajectory Remains Intact
Gold’s recent gains, driven by both the political climate and expectations for a rate cut, suggest a continued bullish outlook. As long as key support levels hold, gold is poised for further gains, with potential resistance levels in sight. Investors will continue to watch the developments surrounding the Fed, as well as the upcoming economic data, for further signals about the direction of the US Dollar and gold prices.
In the face of political uncertainty, inflation concerns, and a weakening labor market, gold’s status as a safe-haven asset remains intact. As the Fed prepares for its next policy move and the broader economic landscape continues to evolve, gold remains a strong candidate for investors seeking stability in turbulent times.
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