On Monday (August 26th), in the morning session of the Asian market, spot gold fluctuated narrowly and is currently trading around $2514.69 per ounce, holding near the highest closing price in history. Gold prices rose more than 1% last Friday to close at $2511.85 per ounce, as the yield of US dollars and treasury bond bonds fell after Federal Reserve Chairman Powell made remarks on interest rate cuts in September.

Over the past weekend, Hezbollah launched hundreds of missiles into northern Israel. Israel claimed that its preemptive strike on Lebanon prevented a larger attack, while Hezbollah claimed that the attack had been completed and denied that its plans were thwarted by Israel's attack. But both sides have no intention of erupting into a full-scale war, and gold prices did not rise significantly at the opening on Monday. Investors still need to continue to pay attention to geopolitical news.

Hezbollah launched hundreds of rockets and drones into Israel earlier on Sunday (August 25th), and the Israeli military said it had deployed about 100 fighter jets to strike Lebanon to prevent larger scale attacks. This is one of the largest conflicts in the Lebanon Israel border war in over 10 months.

Air raid sirens sounded within Israel, explosions in the distance illuminated the horizon, missiles hovered in the dawn sky with black steam marks behind them, and thick smoke rose over houses in Khiam, southern Lebanon.

The Israel Defense Forces (IDF) said that on Sunday evening, an alarm sounded in Rishon Letsiyon, central Israel, and added that a shell had been found crossing the southern Gaza Strip and landing on an open area. The Hamas armed group said they launched an M90 rocket towards Tel Aviv.

If any significant spillover effects occur in this battle that began simultaneously with the Gaza War, it could escalate into a regional conflict, dragging Hezbollah supporters Iran and Israel's main ally, the United States, into the war.

Lebanon and Israel have confirmed three deaths and one death respectively. Both sides have expressed their willingness to temporarily avoid further escalation of the situation, but have warned that there may be more attacks in the future.

In addition, the market will continue to digest the speech of Federal Reserve Chairman Powell this week.

Powell made it clear at the Kansas City Fed's annual economic meeting in Jackson Hole, Wyoming last Friday that the "time has come" for the Fed to cut interest rates, and that inflation is approaching the Fed's 2% target, indicating that policy easing is imminent.

We do not seek or welcome further cooling of the labor market conditions, "Powell said." We will do our best to support a strong labor market while further achieving price stability. With policy restrictions appropriately reduced, we have ample reason to believe that the economy will return to an inflation rate of 2% while maintaining a strong labor market“

After Powell's speech, the US dollar index fell 0.8% to 100.67, the lowest closing price in more than a year, and the yield of US 10-year treasury bond bonds also fell, which made gold more attractive to other currency holders.

New York independent metal trader Tai Wong said, "Powell's general but somewhat open-ended comments suggest that now is the time to adjust policies, and asset markets have responded well at least initially

Gold will continue to rise before the September Federal Reserve meeting and the updated dot matrix, which will show the possible number of interest rate cuts this year

Traders continued to bet on a 25 basis point rate cut by the Federal Reserve at its meeting on September 17-18 last Friday, and after Powell's speech, they believe there is a 65% chance of that. But they now believe that the probability of the Federal Reserve cutting interest rates by 50 basis points is one-third, higher than the previous quarter.

Steve Englander, Head of G10 Foreign Exchange Research at Standard Chartered Bank, said, "I think the market's reaction - a slight weakening of the US dollar and a slight drop in bond yields - is correct. It's not as strong as if he said 'Yes, we need to start the easing cycle with three 50 basis point rate cuts'

Englander said of Powell's speech on inflation and employment, "The implicit meaning is that he has opened the door to a 50 basis point rate cut at some point in time, but has not given a timetable. We still do not believe that a 50 basis point rate cut will occur the first time, but if the labor market continues to weaken, it may be done soon

If the Federal Reserve takes action in September, it will mean a shift in the restrictive interest rate policy implemented since March 2022 to combat inflation. The target interest rate range of the Federal Reserve has remained at 5.25% -5.50% since July 2023.

Late last Friday, Chicago Fed President Goolsby stated that although he is not yet ready to explicitly call for the Fed to cut interest rates, monetary policy has become quite tight and is no longer suitable for the current economic situation.

Uto Shinohara, Managing Director and Senior Investment Strategist at Mesirow, said, "Forex is a relative game, so the expectation that the Federal Reserve will soon join other major central banks in cutting interest rates is driving down the US dollar

The yield of US treasury bond bonds fell across the board on Friday, and the yield of 10-year treasury bond bonds fell 6.1 basis points to 3.801% on Friday. The yield recorded the largest daily decline in nearly three weeks.

The yield of two-year treasury bond reflecting interest rate expectations fell 9.7 basis points to 3.913% last Friday, which is bound to record the largest one-day decline since August 2.

Morgan Stanley's joint head of broad markets fixed income, Vishal Khanduja, said, "Powell confidently affirmed the expectation of market digestion... It is also very clear from his speech that in the future, more focus will be on the labor market rather than inflation

He added that the trend of slowing inflation in the economy remains unchanged and is moving towards the Federal Reserve's 2% inflation target.

He said, "The previous question was when to cut interest rates for the first time, and whether or not to cut interest rates largely depends on the data. Now, I think they are linking the pace and magnitude of future interest rate cuts to the data. This is a slight shift

Powell's speech was cautiously optimistic, implying that inflation is continuing to return towards the target and has not led to a sharp rise in unemployment, "Dan Siluk, Global Head of Short Term and Liquidity at Janus Henderson, wrote in an email comment. This may reassure investors about the possibility of an economic soft landing. After the speech, the risk markets - the stock market and the credit market - have become even stronger.

This week, we will receive the August PCE data from the United States, and investors need to pay close attention to it.

The core PCE price index in the United States rose by 2.6% year-on-year in June and is likely to remain at this level in July. The overall PCE year-on-year data is expected to remain stable at 2.5%.

As the most favored inflation indicator by the Federal Reserve, the year-on-year changes in the core PCE price index have a significant impact on policymakers.

The core PCE price index in the United States is expected to rise by 0.2% month on month in July. analyst Eren Sengezer stated that due to Powell's latest remarks indicating that policymakers are now more focused on the labor market rather than inflation, it may require data of 0.4% or higher for the US dollar to rise decisively.

At the same time, personal consumption is expected to increase by 0.5% month on month in July. Although this may further ease fears of an economic recession, it may weaken hopes of a significant reduction in interest rates. In addition, it is expected that personal income in the United States will only increase by 0.2% in July.

This trading day will see the monthly rate of durable goods orders in August in the United States, and investors need to pay close attention to it.

Daily chart of spot gold