On Wednesday (August 21st), in the morning session of the Asian market, spot gold fluctuated narrowly at a high level and is currently trading around $2515.51 per barrel. The gold price continued its record high on Tuesday, hitting a new historical high of $2531.58 per ounce and closing at $2513.88 per ounce, holding above the key level of $2500, aided by the weakening of the US dollar hitting a new low for the year and increased investor confidence that the Federal Reserve may cut interest rates in September.

The US dollar index fell to the lowest level in seven months, making gold more attractive to investors holding other currencies. The yield of US 10-year treasury bond bonds fell to a low level in more than two weeks, which also reduced the opportunity cost of holding gold.

The US dollar index fell 0.42% at the end of Tuesday's trading session, hitting a low of 101.36, the lowest since December 29th. Sanya City remained weak on the week, hitting a low of 101.35.

Aakash Doshi, head of North American commodities at Citigroup Research, said, "The main driving force behind the gold price trend is financial investment demand, especially the improvement in buying for exchange traded funds (ETFs), as well as the overall sentiment improvement driven by expectations of the Federal Reserve's loose cycle starting in September

Doshi added that gold may reach $3000 per ounce by mid-2025 and $2600 per ounce by the end of 2024.

The SPDR Gold Trust GLD, the world's largest gold listed ETF, saw its holdings soar to the highest level in seven months on the week, reaching 859 tons.

According to CMEFedWatch Tool, the market expects the probability of the Federal Reserve cutting interest rates in September to be around 100%.

Traders will closely monitor the minutes of the Federal Reserve's July policy meeting on Wednesday and Chairman Powell's keynote speech at the Jackson Hole seminar this weekend to find more clues about interest rate cuts.

Gold often benefits in low interest rate environments. So far this year, the gold price has risen by over 20% and is poised to achieve its best annual performance since 2020.

On Wednesday, the US Bureau of Labor Statistics will also release the preliminary report on the first quarter of 2024 non farm payroll and wage census (QCEW), which investors need to pay close attention to.

Goldman Sachs economists predict that the number of jobs created in the United States between April 2023 and March 2024 will be 600000 to 1 million fewer than previously reported.

Marc Chandler, Chief Market Strategist at Bannockburn Global Forex, stated that if the number is lowered by 1 million, it would mean creating 1.6 million jobs during this period, which is lower than the initially reported 2.6 million.

He said that the prospect of a weak labor market is the reason why traders continue to expect the Federal Reserve to cut interest rates by 50 basis points in September. People used to think that the Federal Reserve was lagging behind in raising interest rates, but now many people believe that the Fed is lagging behind in lowering interest rates

If you see that the data correction results from the US Bureau of Labor Statistics (BLS) are worse than expected, that would be a big problem, "said Anderson of Laffer Tengler. The Federal Reserve will have to take action and truly begin seeking to accelerate the pace of interest rate cuts

After data showed higher than expected housing inflation and strong retail sales in July, traders reduced their bets on the Federal Reserve lowering its benchmark overnight rate by 50 basis points at its September 17-18 meeting.

Weaker than expected employment data may exacerbate people's concerns about an economic downturn that could be worse than the expected 'soft landing'. Soft landing refers to a situation where inflation is under control but there is no recession.

In early August, after job growth fell short of expectations and the unexpected rise in unemployment rate in July raised concerns about a possible economic recession, traders aggressively digested the expectation of an imminent interest rate cut.

According to the CME FedWatch Tool, traders believe that the likelihood of a 50 basis point rate cut in September is about 32.5%, and the likelihood of a 25 basis point rate cut is 67.5%. Traders also believe that there will be a cumulative interest rate cut of about 222 basis points by the end of 2025.

Traders will focus on Powell's speech at the Jackson Hole Economic Seminar on Friday to find new clues about the potential rate cut next month and whether the Federal Reserve may lower borrowing costs at every subsequent meeting.

Due to the August employment report and key inflation data being released before the next Federal Reserve meeting, Powell may not be willing to provide too much information on the interest rate outlook on Friday.

Just over half of the economists surveyed by Reuters expect the Federal Reserve to cut interest rates by 25 basis points at each of its remaining three meetings in 2024.

Federal Reserve Governor Bauman stated on Tuesday that she remains cautious about any shift in Fed policy, as she believes there is a risk of sustained upward inflation, and warned that overreacting to any single data point could jeopardize the progress already made.

Investors are still paying attention to the Jackson Hole Conference starting on Friday, where Powell will deliver a speech.

Byron Anderson, head of fixed income at Laffer Tengler Investments, said, "You have to see a change in Fed policy, at least in their words. I think the Fed will tell the market that yes, interest rates will fall, but the pace will be slower than expected

He pointed out that the slow pace of policy relaxation is based on the economic situation.

He said, "If you look at the Gross Domestic Product (GDP) of the United States, it is higher than expected. The only real exception is the rise in unemployment rate. But the rise in unemployment rate in the past few weeks is also temporary. You may see that the unemployment rate is starting to decline. From an economic perspective, we have not seen the US economy fall off a cliff

The yield on the US 10-year treasury bond bond fell 4.9 basis points to 3.818% on Tuesday. So far this month, the yield has fallen by nearly 28.7 basis points, and is expected to record the largest monthly decline since December. In Sanya, the yield of US Treasury bonds continued to decline, reaching a low of 3.802% as of 07:20, the lowest since August 6th.

The geopolitical situation also provides support for gold prices.

On the 20th, the Israeli Defense Forces issued a statement stating that Hezbollah militants in Lebanon had launched over 100 rockets at Israel that day. Multiple areas in northern Israel have sounded air raid sirens, with some rockets intercepted by Israeli forces and others landing in open areas. There have been no reports of casualties.

In addition, multiple drones were launched towards Israel within Lebanese territory, and Israeli air defense systems intercepted some of the targets. The Israeli military statement also stated that on the 20th, the Israeli army attacked several Hezbollah armed military facilities in southern Lebanon, including rocket launchers and military buildings. There has been no response from the Lebanese Hezbollah armed group regarding the Israeli military's statement.

According to Politico, two US officials and two Israeli officials said on Tuesday that the agreement to end the fighting in Gaza is on the brink of collapse, and there is currently no clear alternative agreement that can be proposed immediately.

The current ceasefire proposal was jointly proposed by the United States, Israel, Egypt, and Qatar in the weeks of July, and it includes tailored terms to meet the demands of both Hamas and Israel. Israel has signed the agreement, but Hamas has publicly stated that it will not accept it.

Officials say this has raised concerns among US officials that the proposal will fail like previous ones, as Hamas and Israel have differences and no clear path to end the fighting or release hostages. Many people in the White House are now frustrated with the organization's public statements, unsure whether Hamas' rhetoric is just a bluff negotiation strategy or if they truly oppose the agreement.

Daily chart of spot gold