Fed Chair's Latest Remarks: No Rush to Cut Rates! Gold Prices Plunge!

Federal Reserve Chairman Powell: No rush to cut interest rates or adjust policy in the near term

According to CCTV News, on February 11, local time, Federal Reserve Chairman Powell attended a hearing held by the Senate Committee on Banking, Housing, and Urban Affairs. Powell stated that the Federal Reserve will complete its framework review before the end of summer, and the framework review will not focus on the inflation target, which will remain at 2%.

Powell said that the US unemployment rate and labor market conditions do not constitute a source of inflationary pressure. If the labor market weakens unexpectedly or inflation falls faster than expected, the Federal Reserve can ease policy. If the economy performs strongly and inflation fails to move toward the 2% target, the Federal Reserve can maintain tighter policy for a longer period.

Powell said that the Federal Reserve is not in a hurry to continue cutting interest rates in the near term. Powell stated that the policy is prepared to deal with risks and uncertainties, and there is no need to rush to adjust the policy.

Gold surges and then falls back

On February 11, the COMEX gold futures April contract plunged after hitting a record high of $2968.5 per ounce, closing down 0.1% at $2932.6 per ounce.

Liu Yuxuan, senior researcher at Guotai Junan Futures Research Institute, introduced that in terms of spot gold, arbitrage between New York and London continues, and London spot gold is tight. Affected by the expectation of additional US tariffs, the price difference between the New York and London markets has widened, providing arbitrage opportunities for investors. According to foreign media reports, the waiting time for withdrawing gold from the Bank of England's vault has been extended from a few days to four to eight weeks. Gold may face the risk of tight spot liquidity, pushing up prices. Gold lease rates surged to over 4%, falling back to 3.11% on February 7, but still far exceeding historical normal levels. "It is worth noting that the latest silver lease rate has soared to over 6%, which means that overseas silver spot is also facing a very tight state, and the impact of spot on silver prices needs to be paid attention to." she said.

Regarding the core driving factors behind the recent surge in gold prices, Zhan Dapeng, director of non-ferrous metal research at Everbright Futures Research Institute, believes that firstly, despite expectations of rising inflation, under the pressure of the economy and financial markets, the market's expectation that the Federal Reserve will move towards easing remains unchanged, and the probability of a rate cut in the second quarter is slowly rising. Secondly, Trump's tariff policy will lead to uncertainty in the global economy. Currently, both the repeated high levels of the US dollar and the high volatility of US stocks highlight market anxiety and risk aversion, prompting other countries to seek alternatives to the US dollar, indirectly increasing the valuation of gold. Thirdly, Trump's previous promise to end the Russia-Ukraine conflict as soon as possible has not been fulfilled, and the geopolitical environment has not improved as expected, which is significantly different from previous market expectations and is also a major positive for gold.

Gu Fengda, chief analyst at Guoxin Futures, believes that the outlook for global economic recovery is unclear, especially the uncertainty of US trade policy and the escalation of global geopolitical risks, leading to a continued increase in market demand for gold as a safe haven. Especially after Trump took office in 2025, the uncertainty facing the market has surged, and concerns about trade friction and policy changes have intensified. In the past three years, the Chinese market's allocation of gold has increased significantly. Entering 2025, the demand for gold allocation in the North American market, represented by the United States, has exploded, and the acceleration of global changes has significantly increased investors' willingness to increase their long-term allocation of gold.

In addition, 46 states in the United States have announced that they recognize the monetary status of gold. Utah was the first to accept gold and silver as legal tender on March 10, 2011, followed by other states. The frequency of bills making gold legal tender in various states has significantly increased in 2022 and 2023. On February 3, Kentucky officially announced that it would treat gold as legal tender and became the 49th state not to levy sales tax on gold and silver.

"Under the increasing risks implied by the high US debt and the trend of global de-dollarization, US states are increasingly attaching importance to the status of gold as an alternative currency." Liu Yuxuan said, however, in the states that have passed the bills, the liquidity of gold as a currency is relatively limited, and no mandatory measures have been taken, so the actual impact is still relatively limited.

The demand for gold allocation by central banks and financial institutions around the world has also steadily increased. Gu Fengda introduced that central banks around the world continue to increase their holdings of gold to reduce their dependence on the US dollar and enhance the security of their own currencies. In 2024, global central bank gold purchases exceeded 1,000 tons, remaining at a historical high for three consecutive years. Entering 2025, with changes in the geopolitical situation, the global trend of central bank gold purchases continues, driving the continued growth in the demand for gold-related product asset allocation by financial institutions and ultra-high-net-worth clients. Since the second half of 2024, the demand for gold ETFs has recovered significantly. In 2024, the total asset management scale of gold ETFs in the Chinese market jumped by 150%.

"With strong global market risk aversion in 2025, especially against the backdrop of continuous geopolitical risks and high uncertainty in the global economy, central banks, financial institutions, and investors around the world have increased their gold allocation, partially ignoring traditional interest rate factors. Investors not only regard gold as an asset linked to US Treasury bond yields, but also attach greater importance to its role as a safe haven in financial crises, currency devaluation, and global economic uncertainty, significantly boosting the allocation value of gold in major asset classes." Gu Fengda said that the strong performance of gold prices is the result of the combined effect of multiple factors, and future trends will still be affected by factors such as global economic uncertainty, geopolitical risks, central bank gold purchase trends, and market risk aversion. Looking forward to the first half of 2025, the high point of gold prices is expected to break through the $3,000 per ounce mark.

Zhan Dapeng said that while bullish on gold prices, it is necessary to guard against short-term profit-taking by longs.

It is worth noting that on February 7, the National Financial Regulatory Administration officially issued the "Notice on Conducting Pilot Programs for Insurance Fund Investment in Gold Business," allowing 10 pilot insurance companies to conduct pilot programs for investing in gold business for the purpose of medium- and long-term asset allocation. Liu Yuxuan believes that this opening up may have a significant impact on the gold spot market. The notice mentions that the book balance of insurance companies' investment in gold shall not exceed 1% of the company's total assets at the end of the previous quarter. Given the large scale of insurance funds, it may have a certain impact on the price difference between gold futures and spot, the price difference between domestic and foreign markets, and the unilateral price of gold. Investors are advised to pay attention.