- Gold prices fall after Fed cuts 50bp rate; officials project the federal funds rate to hit 4.4% by 2024.
- Fed expresses confidence in approaching 2% inflation target, despite economic uncertainties and balanced mandates.
- US Treasury yields rise to 3.67%; US Dollar Index falls 0.54% to 100.49, hitting a new yearly low of 100.24.
Gold prices fluctuated within the $2,565-$2,600 range during the North American session after the Federal Reserve (Fed) cut rates by 50 bps. The Fed also projected the federal funds rate to end 2024 around 4.4%, according to the median estimate. At the time of writing, the XAU/USD had erased its earlier gains and is down more than 0.20%.
Fed policymakers decided to cut borrowing costs as they gained confidence that inflation is moving “sustainably” toward the bank’s 2% target. However, they acknowledged that the dual mandate of price stability and maximum employment is roughly balanced, while noting that the economic outlook is uncertain.
It’s worth noting that there was one dissenter on the vote, as Gov. Michelle Bowman voted to cut rates by a quarter of a percentage point.
The Summary of Economic Projections (SEP) shows that officials estimate that interest rates will end at 4.4% in 2024 and 3.4% in 2025. Meanwhile, inflation as measured by the core Personal Consumption Expenditures (PCE) Price Index is projected to reach its target in 2026, although it is projected to end at 2.6% in 2024 and 2.2% in 2025.
Fed officials project the economy will grow at a 2% pace in 2024 and the unemployment rate will rise to 4.4% by year-end.
Meanwhile, Fed Chairman Jerome Powell’s press conference is underway. He said that risks to inflation have diminished and reaffirmed that the economy is strong. Powell added that if inflation persists, “we can adjust policy more slowly,” adding that, according to the SEP, the Committee is in no hurry to normalize policy.
Meanwhile, US Treasury yields are up two and a half basis points at 3.67%, while the dollar is tumbling. The US Dollar Index (DXY), which tracks the performance of the greenback against six currencies, is down 0.54% at 100.49 after hitting a fresh yearly low of 100.24.
Market drivers in the daily roundup: Gold price falls in a volatile session
- The December 2024 federal funds rate futures contract suggests the Fed could cut rates by at least 108 basis points, implying that over the next two meetings, they expect two remaining 25 bp rate cuts in 2024.
- US building permits in August rose 4.9% month-on-month, from 1.406 billion to 1.475 billion.
- Housing starts increased 9.6%, rising from 1.237 million to 1.356 million.
XAU/USD Technical Outlook: Gold Price Hits $2,600, Then Pulls Back Amid Powell Press Conference
Gold price remains volatile during the North American session but remains bullish after hitting a new all-time high of $2,600. However, buyers failed at the latter, which could pave the way for a pullback.
Momentum favors buyers, although short-term sellers are in control as the Relative Strength Index (RSI) points lower.
If XAU/USD falls below the September 13 low of $2,556, the next support would be $2,550. Once cleared, the next stop would be the August 20 high, which turned into support at $2,531, before targeting the September 6 low of $2,485.
On the upside, if gold continues to rally, the first resistance would be $2,600. A break of the latter will expose the psychological levels of $2,650 and $2,700.
Gold FAQs
Gold has played a pivotal role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from its luster and use for jewelry, the precious metal is considered a safe haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. In order to support their currencies in turbulent times, central banks tend to diversify their reserves and buy gold to improve the perception of the strength of the economy and the currency. High gold reserves can be a source of confidence in a country’s solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase on record. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasury bonds, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
Gold prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, Gold prices tend to rise when interest rates fall, while rising money prices often weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep Gold prices in check, while a weaker Dollar is likely to push Gold prices higher.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
