Potential Rate Cuts and Trade Tensions Drive Gold to New Highs

Federal Reserve Chair Jerome Powell recently stated that since the September meeting, the U.S. economic outlook has changed little, but the labor market faces growing downside risks. His remarks signaled that the Fed is open to further rate cuts and may soon end its balance sheet reduction program. Markets interpreted this as a strong indication of another potential rate cut, triggering volatility in Treasury yields and the U.S. dollar index, while gold prices continued to find strong support.

Powell noted that pre-shutdown data suggested the U.S. economy may be expanding slightly faster than expected, but the slowdown in hiring has become more evident, with employment likely to decline further. He admitted, “The risks to employment appear to have increased.” He also mentioned that the banking systems reserves remain sufficient and could soon reach levels that justify pausing quantitative tightening, signaling a transition toward a “wait-and-see” phase in balance sheet management.

Powell emphasized that market liquidity has shown signs of tightening, and the Fed will act cautiously to avoid a repeat of the 2019 “balance sheet panic,” when funding shortages triggered sharp market disruptions. He further warned that if the Fed loses its ability to pay interest on reserves, it could lose control over short-term rates — a scenario that could have more severe consequences for financial markets.

When asked about the recent surge in gold prices, Powell declined to comment directly on asset valuations. However, most market participants believe that expectations of a dovish policy shift have been one of the key drivers behind golds rally.

Meanwhile, Fed Governor Michelle Bowman stated that she expects two additional rate cuts by year-end, emphasizing that current economic risks are now concentrated in the employment sector. She revealed that the Fed will soon release a new bank stress test proposal, with model details shared in advance to help banks manage volatility in annual capital ratios.

Analysts believe Powells latest remarks confirm that the Fed remains on a path toward further easing, signaling a gradual shift in policy focus — from fighting inflation to supporting growth and employment.

Overall, markets widely expect the Fed to begin a new rate-cut cycle before year-end and to pause balance sheet reduction in the near term. If rate cuts materialize, the U.S. dollar index could remain under pressure, while gold — as a non-yielding safe-haven asset — may gain renewed upward momentum.

Gold Technical Analysis

Gold investors should closely monitor the support level at $4,150/oz.

If prices pull back to this level without breaking below, gold is likely to oscillate within the $4,150–$4,200 range, presenting opportunities for both short and long positions within that band.

Resistance: $4,200/oz

Support: $4,150/oz

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