Weekly gold drop imminent as traders trim expectations for Federal Reserve interest rate reductions
Gold prices soared on Friday, August 22, 2025, reaching around $3,417 per ounce. The surge was primarily driven by Federal Reserve Chair Jerome Powell's speech at the Jackson Hole symposium, where he signaled openness to a potential interest rate cut in September.
In his speech, Powell cautioned about "challenging" economic conditions ahead, particularly noting downside risks to employment and the inflationary effects of tariffs. This dovish tone boosted investor demand for gold as a safe-haven asset amid expectations of monetary easing in the U.S. economy.
The Fed Chair's comments reflected concerns over a weakening U.S. labor market and persistent inflation above the Fed's 2% target. Traders increased the probability of a 0.25% Fed rate cut at the upcoming September FOMC meeting from 75% to 87%. This boosted stocks simultaneously, as investors saw the rate cut as a sign of economic stimulus.
However, easing geopolitical tensions, such as optimism about a potential ceasefire between Russia and Ukraine and the reversal of U.S. tariffs on Swiss gold, also influenced market sentiment. These factors slightly dented gold's safe-haven appeal earlier in the week, but Powell's speech reaffirmed it.
Regarding China, although no specific economic data details are provided, the global markets often react to Chinese economic conditions due to China’s significant role in global demand and supply chains. Any signs of slowdown or stimulus from China typically impact commodity prices, including gold. Given gold’s rise was prominently linked to U.S. monetary policy expectations and geopolitical dynamics, China’s economic data likely played a secondary but complementary role in global risk sentiment.
In summary, the rise in gold prices on Friday was mainly due to Powell’s dovish stance suggesting a September rate cut amid U.S. economic challenges, which also reassured markets about support for growth. This, combined with some easing geopolitical risks, shaped the current global economic outlook, with investors seeking safety amid uncertainty.
Meanwhile, the dollar index was a tad softer, and while bets on a "jumbo" 50-basis-point cut evaporated, there is a 92.6% chance the Federal Reserve will lower rates by a quarter point next month. New-home prices in China fell at a faster pace in July. U.S. gold futures were up 0.2% at $3,390.40, and spot gold edged up by 0.3% to $3,3343.88 per ounce in European trade.
- Investors' demand for gold as a safe-haven asset intensified due to Federal Reserve Chair Jerome Powell's dovish tone, signaling a potential interest rate cut in September and warning about challenging economic conditions.
- The surge in gold prices and the boost in investor demand are believed to be complemented by China's economic data, as global markets often react to Chinese economic conditions given China's significant role in global demand and supply chains, although specific data details were not provided.
