Benefiting from the increasing expectation of interest rate cuts by the Federal Reserve, gold prices rose on Monday (July 15th). On Monday in New York, influenced by the speech of Federal Reserve Chairman Powell, the gold market experienced a major trend, with gold prices soaring to around $2440 per ounce.

FXStreet analyst Christian Borjon Valencia pointed out that gold prices rose on Monday, hitting a several week high of $2439 per ounce during trading, as Federal Reserve Chairman Powell hinted at a rate cut before reaching the 2% inflation target.

Spot gold closed up $12.67, or 0.53%, at $2422.15 per ounce on Monday.

Powell's' pigeon 'gold price soared to around $2440 at one point

Federal Reserve Chairman Powell sent a dovish signal in his speech on Monday. Powell stated that the second quarter economic data has given policymakers more confidence that inflation is falling towards the Federal Reserve's 2% target. This statement may pave the way for recent interest rate cuts.

Powell attended a luncheon at the Washington D.C. Economic Club on Monday and had a conversation with the club's chairman and co-founder of the Carlyle Group, David Rubenstein.

Powell stated that he will not wait until inflation reaches the 2% target before cutting interest rates, as the impact of monetary policy is lagged. If interest rates are maintained for too long and too high, it will excessively suppress economic growth.

He further explained that if we wait until inflation reaches the 2% target and cut interest rates, it may take too long because we are currently adopting a tight monetary policy or the existing tightening policy will still have an impact, which can lower the inflation rate below 2%.

He pointed out that the US economy is doing well, the job market is better, and it is in a more balanced state. He also specifically pointed out that there has been more progress in inflation in the second quarter of this year, and the last three inflation reports are "quite good" progress.

As for the job market, Powell believes that if it continues to cool down, this is also a reason to take action (interest rate cuts).

As Powell began to deliver speeches, the US dollar briefly fell sharply, and spot gold soared to $2439.79 per ounce at one point. Subsequently, the gold price gave up some of its gains.

This is Powell's first statement since the June Consumer Price Index (CPI) report showed a cooling of inflation.

The US Department of Labor reported last Thursday that the US Consumer Price Index (CPI) fell 0.1% month on month in June, marking the first decline since May 2020, after market expectations for a 0.1% increase. The non seasonally adjusted CPI in the United States rose by 3.0% year-on-year in June, lower than the market expectation of 3.1%, reaching the lowest level since June last year.

In addition, the seasonally adjusted core CPI monthly rate in the United States recorded 0.1% in June, lower than the market expectation of 0.2% and the lowest level since August 2021. The seasonally adjusted core CPI for June recorded an annual rate of 3.3%, lower than the market expectation of 3.4%, and the lowest level since April 2021.

The next monetary policy meeting of the Federal Reserve will be held on July 30-31, and the market expects interest rates to remain unchanged. However, it is betting that the Fed will cut interest rates at least twice from September until the end of this year.

Marc Chandler, market strategist at Bannockburn Global Forex, said, "The market is full of confidence, and he felt it before (Powell) talked about the September rate cut, so I don't think he really talked about it publicly, but it's clear that it's already taken into account. Powell could have put forward stronger reasons to prove that we achieved a soft landing, and now we need to avoid a hard landing. This is the tone that is about to unfold

How will gold prices trade next?

According to the Chicago Mercantile Exchange's "Federal Reserve Watch" tool, traders believe there is a 100% chance that the Fed will cut interest rates by 25 basis points in September.

Since gold does not yield interest, interest rate cuts can reduce the opportunity cost of holding gold and increase its attractiveness to investors.

Jim Wyckoff, senior market analyst at Kitco Metals, said, "The trend of gold prices will continue to rise sideways, and I wouldn't be surprised if a new record high is set in the coming weeks or even shorter. Spot gold hit a historic high of $2449.89 per ounce on May 20th.

FXStreet analyst Christian Borjon Valencia pointed out that despite some respite from gold buyers, gold prices are still bullish.

Valencia stated that gold prices failed to maintain near the daily high of $2439 per ounce on Monday, but remained above $2400 per ounce. The momentum remains bullish, but recent indications suggest that gold buyers are breathing in, as indicated by the Relative Strength Index (RSI), which is flat but still bullish.

Valencia stated that if gold prices rise above $2439 per ounce, it will pave the way for testing the year to date high of $2450 per ounce. Once this level is effectively overcome, it is expected to further rise, with the next target being $2500 per ounce.

Valencia added that on the other hand, if the gold price falls below $2400 per ounce, the next support will be the July 5th high of $2392 per ounce. If it falls below this level, the gold price will continue to drop to $2350 per ounce.