Gold slips ahead of Powell speech, focus on rate outlook

Gold prices edged lower on Wednesday ahead of a keenly awaited speech by Federal Reserve Chair Jerome Powell later in the day, with investors looking for further clues on the U.S. interest rate outlook.

Spot gold fell 0.3% to $1,963.87 an ounce by midday, extending declines into a third session. Prices have retreated from last week’s five-month peak as the dollar firmed.

Market focus is squarely on Powell’s remarks at economic events on Wednesday (2:15 pm GMT) and Thursday (7:00 pm GMT) for any signals on how much further the Fed may push rates up.

“Gold price reaction will very much depend on how the market views Powell’s comments,” said Edward Gardner, commodities economist at Capital Economics.

The Fed chief’s speech comes after a number of policymakers maintained a hawkish tone this week, noting inflation remains too high despite a recent slowdown.

Minneapolis Fed President Neel Kashkari said on Tuesday he has pencilled in a 5.4% “terminal rate” for Fed policy. Chicago Fed President Austan Goolsbee also saw rates potentially rising further.

Markets remain divided on whether the Fed will pause tightening after a likely December hike.

Rate futures imply about a 50-50 chance of a further quarter-point increase in February to a range of 5.0% to 5.25%.

The Fed signalled rates will stay higher for longer, likely above 5% through end-2024 in its latest forecasts. That is seen as negative for gold, which pays no interest.

“Even if the Fed pauses soon, it is only expected to begin trimming rates by mid-2024, limiting major near-term gains for gold,” Gardner said.

Reflecting appetite for safer assets, the dollar index rose 0.2% against major currencies.

Investor focus has also shifted away from geopolitical tensions after the Israel-Hamas conflict in Gaza cooled this week, denting gold’s safe-haven allure.

“There is some perception that the Middle East conflict might be contained, also weighing on gold,” Gardner added.