Powell: No Rush to Cut Rates; Fed's Policy Remains Tight; Gold Prices Fluctuate Wildly
On February 11, Eastern Time, Federal Reserve Chair Jerome Powell attended a hearing of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, where he spoke about monetary policy, the economic situation, and financial market trends. He emphasized that despite some decline in inflation, it remains above the long-term target of 2%, and the U.S. economy remains strong. Therefore, the Fed will not rush to lower interest rates in the near future. Powell stated that if inflation does not move toward the 2% target, and the economy stays strong, the Fed may maintain the current tight policy for a longer period, with future interest rate adjustments dependent on economic data and market conditions.
Fed Framework Review: Focus on Policy Adjustments, but Adheres to 2% Inflation Target
During the hearing, Powell revealed that the Fed plans to complete its framework review by late summer 2025, but this review will not change the long-term inflation target of 2%. He noted that the current U.S. labor market remains stable, with unemployment not being a major driving factor for increased inflation. Thus, the Fed will exercise caution in adjusting interest rate policies to avoid the risk of inflation rebounding from premature rate cuts.
Additionally, Powell stated that the Fed's policy tools are prepared to deal with economic and financial market uncertainties, and there's no immediate need to adjust policies. If the labor market unexpectedly weakens or inflation falls faster than expected, the Fed might consider easing policies. But if inflation remains stubborn, the Fed may maintain a tight policy for a more extended period.
Gold Market Fluctuates Wildly, Dives After Rising
Following Powell's remarks, the gold market experienced significant fluctuations. On February 11, the COMEX gold futures April contract briefly reached a historical high of $2,968.5 per ounce but then dipped, ultimately closing down 0.1% at $2,932.6 per ounce. In the spot market, arbitrage trading between New York and London continued, with tight supply in the London spot market leading to increased price volatility.
Analysts point out that recent U.S. trade policies, including potential import tariffs, have further heightened market uncertainty over the global economic outlook. This uncertainty prompts investors to seek safe-haven assets, and as the ultimate safe haven, gold's price volatility has intensified. Reports indicate that the wait time for gold extraction from the Bank of England's vaults has extended from several days to four to eight weeks, tightening liquidity in the spot gold market and pushing lease rates higher. Recent data show gold lease rates rose above 4%, while silver lease rates exceeded 6%, reflecting market concerns over silver spot shortages.
Gold's Rise Driven by Surging Safe-Haven Demand and Policy & Geopolitical Impacts
For the recent fluctuations in gold prices, Zhang Dapeng, director of nonferrous metals research at Everbright Futures Research Institute, analyzes that three core factors are driving gold's surge:
- Strengthening Expectations of Fed Easing — Despite the low possibility of short-term rate cuts, the market expects the Fed to gradually cut rates starting in the second quarter of 2025, with uncertain interest rate prospects supporting gold.
- Uncertainty in Trade and Economic Policies — Trump's trade policies may bring new shocks to the global economy, increasing market risk-aversion sentiment and boosting gold demand.
- Persistent Geopolitical Risks — Despite Trump's previous commitment to ending the Russia-Ukraine conflict as soon as possible, the situation remains tense. The instability in geopolitics has raised demand for safe-haven assets like gold.
Additionally, global economic uncertainties have led central banks to increase gold reserves. Data shows that in the past three years, China's market significantly increased its gold allocation, and gold demand in the U.S. market is rising sharply by 2025. The intensification of global shifts makes investors more inclined to hold gold long-term to hedge against potential future economic risks.
U.S. States Expedite Gold Monetization
In recent years, multiple U.S. states have recognized the monetary status of gold. As of now, 46 states have declared gold as legal tender. Utah was the first to accept gold and silver as legal currency in 2011, with other states following suit. This trend accelerated in 2022 and 2023, with several states passing related legislation. On February 3, 2025, Kentucky officially declared gold as legal tender, becoming the 49th U.S. state not to levy sales tax on gold and silver.
Analysts note that U.S. states' recognition of gold ties closely to the de-dollarization trend. Amid high U.S. debt and financial market pressures, gold's allure as a reserve asset is further enhanced. However, despite multiple states' recognition of gold as currency, they have not implemented mandatory measures, limiting its circulation and having a relatively limited impact on the actual market.
Future Outlook: Gold Market May Continue to Waver; Fed Policy Remains Variable
Looking ahead, the Fed's monetary policy will remain a crucial factor affecting the gold market. In the short term, the likelihood of Fed rate cuts is low, and the market will continue to watch inflation data and labor market performance. In the long term, global trade policies, geopolitical risks, and changes in central banks' gold reserves will continue to drive gold price volatility.
Currently, the market generally expects the Fed may only start cutting rates after the second quarter of 2025. Until then, gold prices may fluctuate at high levels. Meanwhile, with the rising global sentiment for safe-haven assets, gold's appeal as a safe haven is likely to continue, leaving room for further price increases.
