Fed’s Bowman Cautions on Rate Hikes, Potentially “Restraining” Gold Rally

Gold prices remained just below the flatline on Wednesday after reaching a new record high during Asian trading.

As of 07:07 ET (11:07 GMT), gold was down 0.03% at $2,656.24 per ounce, having earlier peaked at $2,670.43 per ounce.

The expectation of declining interest rates has put pressure on the dollar and increased the appeal of gold, as traders see a reduced opportunity cost for holding non-yielding assets. Additionally, safe haven demand for gold surged following Israeli strikes in southern Lebanon, which have escalated tensions in the Middle East. Support for gold prices also came from various stimulus measures announced by China aimed at revitalizing its sluggish economy.

Comments from Federal Reserve officials this week, along with the upcoming release of the central bank’s preferred inflation gauge on Friday, are anticipated to provide more clarity on the future direction of borrowing costs.

Analysts at Citi have forecast that after a significant 50-basis point reduction last week, the Fed is likely to cut rates by a total of 125 basis points this year. Meanwhile, Goldman Sachs expects cuts of 25 basis points at each meeting from November through June 2025.

However, HSBC analysts noted that recent comments from Fed Governor Michelle Bowman, who warned against aggressive rate cuts, could dampen gold’s recent momentum. On Tuesday, Bowman defended her vote against the large rate cut, highlighting that major inflation measures remain “uncomfortably above” the Fed’s targeted levels.

Her viewpoint differs from that of several other Fed officials earlier this week, who contended that the half-point reduction was necessary due to the economic pressures caused by high rates, especially as inflation appears to be decreasing and labor demand stresses are increasing.

The HSBC analysts remarked, “The scenario outlined by Ms. Bowman, while entirely plausible and bearish for gold, is clearly not one embraced by gold investors who are demonstrating their confidence in more significant rate cuts by pushing prices to repeated record highs.”