- Gold prices show modest reaction to Fed’s rate hold, hinting at future rate hike pauses.
- Fed Chair Powell adopts patient stance on policy, influenced by changing fiscal and trade environments.
- Investors focus on Powell’s insights for future Fed actions, anticipating upcoming economic data.
Gold prices edged lower as the US Federal Reserve (Fed) delivered a hawkish hold. The Fed removed inflation language, an indication of a pivot towards maintaining rates unchanged. The XAU/USD trades volatile within the $2,750 – $2,740 range as Fed Chair Jerome Powell crossed the wires.
Powell’s first question was about having been contacted by US President Donald Trump. He answered he had not spoken with Trump and firmly stated that he wouldn’t comment on Trump’s policies or politics.
In addition, Powell said that monetary policy is “less restrictive than it had been,” adding that the Fed is not in a rush to adjust rates. He added that the Federal Open Market Committee (FOMC) is in wait-and-see mode, eyeing fiscal and trade policies implemented by the new US administration.
Powell clarified the Fed doesn’t have a pre-set course on setting interest rates, and when asked about the March meeting, he said they’re not in a rush.
Given the backdrop, XAU/USD seesawed, yet it remains near $2,750 modestly lower. After the Fed’s decision, traders are eyeing the release of Gross Domestic Product (GDP) figures, jobs data, and the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index.
Daily digest market movers: Gold price losses ground after Powell’s press conference
- Earlier, the Federal Reserve unanimously decided to hold rates unchanged at the 4.25% – 4.50% range and dropped inflation language, which traders perceived as indicating that the Fed would keep rates higher for longer.
- The statement added that the economy is expanding solidly, the unemployment rate has stabilized, and labor market conditions remain solid. Additionally, it added that it remained focused on both sides of the dual mandate.
- The Fed’s decision was unanimous.
- The US 10-year Treasury yield rises one basis point up to 4.549% and caps Gold’s advance.
- The US Dollar Index (DXY), which tracks the buck’s value against a basket of six currencies, climbs 0.12%, up at 108.04, a headwind for Bullion.
- Given the backdrop, Gold prices extended their losses, yet they were quite moderate as traders await Fed Chair Jerome Powell’s press conference.
- The CME FedWatch Tool shows that investors expect 50 basis points of easing through 2025, with the first-rate cut seen in June.
XAU/USD technical outlook: Gold’s uptrend intact, as XAU/SD hovers near $2,750
Gold price uptrend remains intact even though the yellow metal dips slightly following the Fed’s decision. XAU/USD hit a daily low of $2,744, trimming some of its earlier losses, and it seems poised to form a ‘bullish harami’ candle pattern, which suggests that higher prices are expected.
In that outcome, XAU/USD next resistance would be the January 24 high at $2,785. A breach of the latter will expose the record high at $2,790, followed by $2,800.
Conversely, if Gold extends its losses and drops below $2,750, the next support would be the $2,730, the January 27 swing low. A breach of the latter will expose $2,700.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Source: https://www.fxstreet.com/news/gold-prices-wobble-as-fed-maintains-hawkish-stance-on-policy-202501292148