The spot gold price on the international market has just experienced a session of strong fluctuations, falling nearly 16 USD, from 2,334 USD/ounce to 2,318 USD/ounce, at the beginning of the session on July 2 (evening of July 2, Vietnam time). However, the gold price then increased again and reached 2,330 USD/ounce.

Although the increase was not strong, gold could not break out in the context of the most powerful man in the world financial market - Chairman of the US Federal Reserve (Fed) Jerome Powell - hesitating about the real health of the US economy as well as the impact of monetary policy.

The Fed chief remains cautious in the face of mixed economic news. Inflation is cooling down quite positively but the US labor market is very "healthy", allowing the Fed to maintain high interest rates for a longer time to pull the consumer price index back to the target of 2%.

However, the potential effects of expensive monetary policy on the US economy may give Fed officials pause.

This is also something that many central banks are closely monitoring to control the escalating exchange rate and the devaluation of domestic currencies, such as Japan. The USD/VND exchange rate has also been tense for many months, and is expected to cool down following the US monetary policy changes.

Why is Fed Chairman Jerome Powell hesitant?

In a speech at the Central Bank Forum in Sintra, Portugal last night (Vietnam time), Fed Chairman Jerome Powell expressed satisfaction with the rate of cooling of US inflation over the past year. However, Mr. Jerome Powell is still not confident enough to cut interest rates.

While inflation is falling “on track,” he wants to see more evidence that inflation can fall to 2% sustainably.

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Gold prices are under pressure from US monetary policy. Photo: HH

On July 1, the US Department of Commerce announced that the US consumer price index (PCE) increased by 2.6% over the past year. This is a favorite inflation measure of the Fed and a positive signal for the US's fight against inflation. In June 2022, US inflation reached a multi-decade high of 9.1%.

What Mr. Powell worries about is that if the Fed cuts interest rates too soon, inflation could rise again, while the US economy is still regularly sending out positive signals such as the brightness of the labor market.

However, if it cuts interest rates too late, the Fed could hurt the recovery and growth of the US economy.

Not only Mr. Powell, many Fed officials also showed caution in the decision to reverse monetary policy. Previously, the signal showed that the Fed would cut interest rates 4 times (each time 25 percentage points) in 2024. But now, the expectation is only 1-2 times.

US cuts interest rates in September, will gold prices increase?

The Fed chief said no specific date has been set for a rate cut, but markets are betting the first cut will come at the September meeting.

According to market signals from the CME FedWatch tool as of the morning of July 3 (Vietnam time), 67.1% believe that the Fed will cut interest rates on September 18. Of which, 61.5% believe that the Fed will cut interest rates by 25 basis points, from the current 5.25-5.5%/year to 5-5.25%/year.

Not only the Fed, the European Central Bank (ECB) may also cut interest rates in September, in the context of rapidly decreasing inflation in the US and EU.

On CNBC , Morgan Stanley experts said the bank is more optimistic about the possibility of interest rate cuts by the Fed and ECB.

A majority of economists surveyed by Reuters also predict the Fed will cut interest rates in September.

Previously, Boston Fed President Susan Collins shared with Yahoo Finance that the Fed is likely to cut interest rates 1-2 times by the end of this year when the US receives more good news about inflation.

Currently, demand for gold is still quite high, often increasing sharply every time the spot gold price falls to $2,300/ounce. Investors still have faith in gold in the medium and long term. However, in the short term, a strong USD is still holding back the gold's upward momentum.

The fact that central banks in many countries lowered interest rates earlier than the US also caused the USD to hang high, thereby putting pressure on gold.

China, a major player in the gold market, resumed buying gold in June after a sudden halt in May, ending an 18-month streak of net purchases, according to several sources. The share of gold in the country’s foreign exchange reserves remains very low at just 4.9%. Meanwhile, Beijing wants to reduce its dependence on the US dollar.

Domestically, with the policy of selling gold directly to people through state-owned commercial banks, it is likely that the price of SJC gold bars will not fluctuate much in the coming time.

The State Bank is selling SJC gold bars to people in need through 4 state-owned commercial banks in the form of online registration at a price of nearly 77 million VND/tael, about 5 million VND/tael higher than the converted world price (calculated according to the bank exchange rate).

Plunging then soaring, what will happen to gold prices after the Biden - Trump debate? World gold prices plunged then soared but "stuck" at the threshold of 2,350 USD/ounce. However, the price of precious metals is expected to fluctuate strongly after the debates between President Joe Biden and Republican opponent Donald Trump.