AtlantisFX | Gold's magical rally has received initial scars after two influential members of the Federal Reserve dampened market expectations of a large cut in interest rates.
Gold on the cash market last traded at $ 1,412.24, losing $ 11.14, or 0.8 percent. That was the second price decline in a row, after the dynamic rally before. On Tuesday, the price of the precious metal jumped to $ 1,438.99, its highest level since May 2013. Subsequently, he sat back slightly.
The Gold Future for delivery in August fell to $ 3.30 or 0.2 percent to $ 1,415.40. On Tuesday, the futures contract hit $ 1,442.15, its highest level since February 2014.
Federal Reserve Chairman Jerome Powell said in a speech on Tuesday that the central bank is ready to reshape its interest rate policy to ensure continued growth in the US economy. But he also stressed that political pressure from Washington will not play a role in their decision.
In addition, St. Louis Fed President James Bullard said in an interview with Bloomberg Television that he did not see the need to cut interest rates by 50 basis points.
An interest rate cut of 0.5 percent next month is what many investors consider necessary for the gold rally to continue.
"Everywhere you look, from South America to China and the Middle East, the United States is involved in political battles and you need a hedge," said George Gero of RBC Wealth Management, New York, in an interview with Investing.com Tuesday.
Another thing that could help gold is the difficult relationship between Trump and Powell.
In fact, if the Fed decides to lower its interest rate by less than expected, say 25 basis points, Trump will increase pressure on the central bank and the Fed chief. There are rumors that Chairman Powell may be demoted and serve the remainder of his term as a normal Fed governor. (The legality of such a step is not clear.)
But a crisis of this magnitude at the Fed should intensify the flight into security, as in gold.