Warsh's dovish pivot extinguishes the flames of rate hikes, gold stabilizes at $4,000, reflecting a re-pricing of the interest rate path.

Federal Reserve Chairman Walsh released signals less hawkish than market expectations, dampening speculation of a rate hike this year, and gold subsequently extended its rebound, regaining ground above $4,000 per ounce.

On Thursday, spot gold rose 0.66% to $4,057 per ounce, ending a two-day losing streak. Gold's strength drove a rebound in other precious metals, with silver at $59.74 per ounce, and platinum and palladium also rising. Meanwhile, the Bloomberg Dollar Spot Index was largely unchanged.

Speaking at the European Central Bank forum in Portugal on Wednesday, Walsh said inflation risks have declined, while reiterating that the Federal Reserve will achieve price stability and is committed to bringing inflation back to the 2% target. His remarks eased market concerns that the Fed might raise interest rates due to rising energy prices and inflation indicators.

For gold, the repricing of the interest rate path is the core variable. Higher borrowing costs are typically unfavorable for non-yielding gold, and Walsh's failure to further strengthen rate hike expectations provided short-term support for the precious metals market.

Rate Hike Expectations Cool, Gold Gets a Breather

The direct trigger for this round of gold's rebound was that Walsh's speech was not as hawkish as the market had feared. Earlier, the Iran war pushed up energy prices and drew attention to inflation indicators, leading markets to speculate that the Fed might raise interest rates this year to counter inflationary pressure.

Walsh's remarks did not ease his anti-inflation stance. He continued the message from his first press conference as Fed chair last month, that the central bank will fulfill its price stability commitment and bring inflation back to 2%. However, compared to market concerns earlier, he did not send a stronger policy signal.

Pepperstone Group Ltd. analyst Ahmad Assiri said this market sentiment is "still a net positive" for gold. However, he also pointed out that the dollar remains at relatively high levels and U.S. Treasury yields have recovered most of their earlier losses.

This shows that investors have not fully confirmed Walsh's policy inclination. Ahmad Assiri said the market is still "unable to clearly grasp Walsh's outlook," as he refuses to provide forward guidance.

U.S. Data Diverges, Nonfarm Payrolls Will Provide Next Clues

The latest U.S. economic data presents mixed signals. Manufacturing activity expanded for the sixth consecutive month in June, but the pace of expansion slowed, indicating uneven economic momentum.

Meanwhile, private sector employment growth was solid, pushing hiring over the past three months to its best range in over a year. Labor market resilience could affect market expectations for the Fed's subsequent policy path.

The nonfarm payrolls data due on Thursday will provide further clues for investors. If employment remains strong, the market may reassess inflation and interest rate risks; if the data weakens, gold's rate support logic may be reinforced.

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