Amidst widespread anticipation, Federal Reserve Chairman Powell announced at the Jackson Hole Global Central Bank Annual Meeting that the time for policy has come. The most closely watched central bank monetary policy path shift this year quickly ignited the market, with short-term boosts in European and American stock markets, a collective strengthening of non-US currencies, and the December COMEX gold futures traded on the New York Commodity Exchange approaching the $2,550 mark once again, potentially setting a new historical high.

As the September interest rate meeting approaches, future changes in risk appetite may continue to be influenced by economic data and differences in the policy paths of various central banks.

Gold is poised to challenge new highs.

The Federal Reserve's policy cycle has a significant impact on gold prices. A summary by First Financial Daily reporters found that after the Fed began cutting rates in September 2019 (from 2.5% to 1.75%), international gold prices rose nearly 30% within a year. In contrast, after the Fed started this tightening cycle and reduced its balance sheet, gold fell nearly 20% within half a year (from 0 to 3.25%).

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The pace of future Fed rate cuts may influence the new peak for gold. Federal funds rate futures indicate that investors expect nearly 100 basis points of rate cuts this year and are still weighing the possibility of a single 50-basis-point cut within the year.

Sal Guatieri, Senior Economist at Bank of Montreal, previously stated in an interview with First Financial Daily that the Fed may still not preset a clear path for rate cuts, preferring to retain its options and observe economic data to determine the appropriate monetary policy. However, the current interest rate levels certainly carry risks. The challenge is to quickly make the right judgments and respond in a timely manner to potential future data fluctuations, thereby reducing the impact on the economy.

Many institutions continue to be optimistic about the future potential of gold prices. UBS analyst Giovanni Staunovo expects gold prices to reach $2,600 per ounce by the end of the year. Alex Kuptsikevich, Senior Market Analyst at the foreign exchange trading platform FxPro, based on the trend from the bottom in October 2022 to September 2023, predicts that gold prices could touch between $2,800 and $2,900 per ounce. Citigroup forecasts that gold prices could reach a new milestone of $3,000 per ounce by mid-2025.

So far this year, international gold prices have risen by more than 20%. In addition to the shift in the Fed's monetary policy, the rise in gold prices this round has been driven by various factors. Data from the World Gold Council shows that central banks have not stopped buying. Adrian Ash, Research Director at Bullion Vault, the world's largest online gold investment platform, found that over the past five years, central banks' demand for gold has surged, with nearly one ounce out of every ten ounces produced by the mining industry being taken in by central banks. Since the summer of 2004, the total amount of gold in central banks' reserves has increased by nearly 19% in weight, and its value has grown sevenfold, reaching $2.4 trillion, with Russia, China, India, and Turkey leading the way.

At the same time, investors from developed countries have also begun to enter the market through ETF instruments. As a traditional safe-haven asset, in the face of escalating geopolitical tensions and a bleak economic outlook, people have once again started to see gold as a good opportunity for diversification and investment. Peter Spina, founder and president of the gold information platform GoldSeek, believes that gold has shown strong resilience during the pullback at the beginning of the month. Similar to emerging markets, Western retail investors have also joined the ranks of gold buyers. "The global demand for gold is quite large, as there are still many market risks, from geopolitical to financial and economic risks," he said. Driven by North America and Europe, global gold ETF demand in July reached its highest level since March 2022.

The dollar plunge causes a massive shock in the foreign exchange market.As the Federal Reserve is on the verge of initiating a rate-cutting cycle, the US dollar index has plummeted, breaking below the 101 level to its lowest since January, marking five consecutive weekly declines. "Powell clearly indicated that the Fed's focus has shifted from inflation to balancing its dual mandate," said Jane Foley, head of foreign exchange strategy at Rabobank. "There was no pushback in the speech against the possibility of a more substantial rate cut by the Fed in September."

In the meantime, the divergence in policy pace among central banks will lead to increased exchange rate volatility. The pound/dollar pair rose above the 1.32 level on Friday, hitting a two-and-a-half-year high. Bank of England Governor Andrew Bailey, who attended the meeting with Powell, stated that although there are signs that the inflation rate will return to the 2% target, the Bank of England must remain cautious when considering further rate cuts.

Bailey indicated that tightening policies may prove to be more enduring than currently anticipated, and such policies will have to remain restrictive for a longer period. "The sustained level of inflation we are seeing is lower than expected a year ago. However, we need to be cautious because the job is not yet done—we have not consistently returned to the target."

The Bank of England cut its key interest rate on August 1st of this year, the first time in over four years. However, the decision was made by a narrow margin of 5-4. Policymakers are focusing on service prices, as they continue to rise rapidly despite other drivers of the inflation surge that began in 2021 being brought under control. Many service industries are labor-intensive, so policymakers are also closely monitoring the job market.

The euro/dollar pair broke through the 1.11 level for the first time since December. The CPI estimate data for August, to be released the following Friday, is crucial for further easing policies in September. Institutions forecast that the overall inflation rate in the Eurozone will drop from 2.6% in July to 2.3% in August, closer to the European Central Bank's 2% target.

Citing sources, the media reported that after being criticized for publicly committing to a rate cut before the first one in June, ECB policymakers are cautious about expressing their next steps. However, dovish members within the ECB believe that conditions for another rate cut are already in place: price pressures are easing as expected, economic growth is below expectations, wage growth is slowing, and the Fed's signals about its own easing policies make the ECB's job easier.

The yen/dollar surged by 1.4%, poised to challenge the 144 level. Data released that day showed that due to the removal of public utility subsidies, electricity prices rose. Japan's core CPI increased by 2.7% in July, accelerating for the third consecutive time and reaching a new high since February.

As inflation rates rise, the Bank of Japan faces increasing pressure to tighten further. Bank of Japan Governor Haruhiko Kuroda said in a speech at the parliament on Friday that the monetary policy plan will continue to move towards normalization. If the economy and prices align with expectations, the Bank of Japan will raise interest rates. He added that the Bank of Japan is closely monitoring the impact of financial market turmoil on inflation. The market widely expects the Bank of Japan to maintain interest rates at its September meeting and may raise rates in December.

In the meantime, the Mexican peso, Brazilian real, South Korean won, Norwegian krone, Polish zloty, and Chilean peso all appreciated more than 1% against the US dollar.