- The Fed maintains unchanged rates at 4.25%–4.50%, highlights the growing uncertainty in economic perspectives.
- Policies responsible indicate solid growth and a strong labor market, but warn of high inflation risks.
- The balance reduction will continue as planned; Traders observe Powell’s comments for politics management.
The price of gold remains down after the Federal Reserve maintained interest rates without changes. The Xau/USD is quoted at $ 3,394, with a fall of more than 1%, while traders prepare for the press conference of the president of the Fed, Jerome Powell.
The Xau/USD falls more than 1% to $ 3,394 while traders expect Powell’s press conference after the cautious tone of the Fed.
The Federal Reserve kept the rates in the range of 4.25% -4.50% unanimously, as expected, and mentioned that uncertainty about economic perspectives had increased even more, adding that the risks of greater unemployment and inflation had increased.
Fed officials added that the economy continues to expand at a solid pace, recognizing that the labor market remains solid, but inflation risks are considered somewhat high.
Regarding the reduction of the balance, the statement said: “The Committee will continue to reduce its holdings of treasure values and debt of agencies and values backed by agency mortgages.”
Gold price reaction
Gold prices jumped slightly above $ 3,390 but failed to reach $ 3,400. However, the main catalyst would be the president of the Fed, Jerome Powell, at his press conference. If it remains as aggressive as it has been previously, a greater fall of the XAU/USD is expected, which could put into play a test of the figure of 3,350 $ before the $ 3,300 brand.
On the contrary, a moderate posture could pave the way for gold buyers to try $ 3,450 and possibly the historical maximum of $ 3,500.
FAQS GOLD
Gold has played a fundamental role in the history of mankind, since it has been widely used as a deposit of value and a half of exchange. At present, apart from its brightness and use for jewelry, precious metal is considered an active refuge, which means that it is considered a good investment in turbulent times. Gold is also considered a coverage against inflation and depreciation of currencies, since it does not depend on any specific issuer or government.
Central banks are the greatest gold holders. In their objective of supporting their currencies in turbulent times, central banks tend to diversify their reserves and buy gold to improve the perception of strength of the economy and currency. High gold reserves can be a source of trust for the solvency of a country. Central banks added 1,136 tons of gold worth 70,000 million to their reservations in 2022, according to data from the World Gold Council. It is the largest annual purchase since there are records. The central banks of emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has a reverse correlation with the US dollar and US Treasury bonds, which are the main reserve and shelter assets. When the dollar depreciates, the price of gold tends to rise, which allows investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rebound in the stock market tends to weaken the price of gold, while mass sales in higher risk markets tend to favor precious metal.
The price of gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of gold to rise rapidly due to its condition of active refuge. As an asset without yield, the price of gold tends to rise when interest rates lower, while the money increases to the yellow metal. Even so, most movements depend on how the US dollar (USD) behaves, since the asset is quoted in dollars (Xau/USD). A strong dollar tends to keep the price of gold controlled, while a weakest dollar probably thrusts gold prices.
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.
