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Gold Jumps After IMF Says Dollar Overvalued

By Barani Krishnan

Investing.com – More than Jay Powell, the IMF seems to have the word of gold now on rate cuts.

Spot gold, reflective of trades in bullion, traded at $1,424.45 per ounce by 2:43 PM ET (18:43 GMT), up $13.25, or 0.9%, on the day.

Gold futures for August delivery, traded on the Comex division of the New York Mercantile Exchange, settled up $12.10, or 0.9%, at $1,423.30.

The IMF said the U.S. currency is overvalued by 6% to 12% based on near-term economic fundamentals. The dollar index, benchmarked against a basket of six currencies, fell 0.2% on that, boosting both bullion and gold futures, which are contrarian trades to the dollar.

A strong employment report released at the beginning of the month had appeared to rule out a 50-basis-point cut at the July 30-31 meeting.

But remarks last week by Powell have seen some hopes of quick and decisive action from the Fed return.

Even so, gold’s biggest decline this week occurred on Tuesday as a stronger-than-expected reading of U.S. retail sales suggested that the Fed may not hurry to ease cut interest rates.

While markets are currently pricing the odds of a quarter-point interest rate cut at 100% for the end of the month, San Francisco Fed President Mary Daly indicated late Tuesday that she still was still uncertain over whether it was the time to do so.

"At this point I'm not leaning one direction or another, but I am very much oriented toward looking at the data, watching the pieces come out, looking at the preponderance of evidence on mood and behavior and momentum and headwinds," she said in an interview with Reuters.

Daly’s colleague Charles Evans, chief of the Chicago Fed, however, argued that a half-point reduction could be warranted in order for the central bank to reach its inflation target.

“There is an argument that if I think it takes 50 basis points before the end of the year to get inflation up, then something right away would make that happen sooner,” he said.

Dallas Fed President Robert Kaplan, who had opposed a cut, recently shifted his stance, saying that he now thinks a "tactical" reduction of a quarter-point could address the risks seen by bond investors, who have pushed some long-term yields below shorter-term ones.

Fed funds futures now price in a 34.9% chance for a 50 basis point cut at the next meeting.

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