Gold Prices React to Fed Rate Cut and Projections
- Gold prices fall following a 50 bps Fed rate cut; officials project fed funds rate to reach 4.4% by 2024.
- Fed expresses confidence in nearing 2% inflation target, despite economic uncertainties and balanced mandates.
- US Treasury yields climb to 3.67%; US Dollar Index dips 0.54% to 100.49, hitting new yearly low of 100.24.
Gold prices experienced fluctuations within the $2,565-$2,600 range during the North American session post the Federal Reserve (Fed) rate cut of 50 bps. The Fed’s projection indicates that the fed funds rate is expected to reach around 4.4% by the year 2024, based on the median estimate. As of the latest update, XAU/USD has reversed its previous gains and is currently down by over 0.20%.
The Federal Reserve’s Decision and Projections
The Fed’s decision to lower borrowing costs reflects their confidence in inflation moving steadily towards the bank’s 2% target. However, they also acknowledged the balanced nature of their dual mandate on price stability and maximum employment, amidst uncertainties in the economic outlook.
Notably, there was a dissenting vote as Governor Michelle Bowman opted for a quarter-point rate cut instead.
Summary of Economic Projections (SEP)
According to the SEP, officials estimate interest rates to end at 4.4% in 2024 and 3.4% in 2025. Inflation, as measured by the Core Personal Consumption Expenditures Price Index (PCE), is projected to reach its target in 2026, with forecasts of 2.6% in 2024 and 2.2% in 2025.
Additionally, Fed officials predict a 2% growth rate for the economy in 2024 and expect the Unemployment Rate to rise to 4.4% by the end of the same year.
Fed Chair Powell’s Insights
During the press conference, Fed Chair Jerome Powell highlighted the diminishing risks to inflation and reiterated the strength of the economy. He mentioned the possibility of a slower policy adjustment if inflation persists and emphasized that the Committee is not rushing to normalize policy based on the SEP.
Market Reactions and Outlook
US Treasury yields are on the rise, reaching 3.67%, while the US Dollar Index (DXY) has declined by 0.54% to 100.49, hitting a new yearly low of 100.24.
Daily Digest Market Movers: Gold Price Drops Amid Volatile Session
- December 2024 fed funds rate futures contract suggests potential rate cuts of at least 108 basis points by the Fed, indicating expectations for two 25 bps rate cuts in the remaining meetings of 2024.
- US Building Permits in August increased by 4.9% MoM from 1.406 million to 1.475 million.
- Housing Starts expanded by 9.6%, rising from 1.237 million to 1.356 million.
XAU/USD Technical Outlook: Gold Price Hits $2,600, Then Retracts
Gold price remains volatile during the North American session, maintaining a bullish trend after reaching a new all-time high of $2,600. However, a pullback may be on the horizon as buyers face resistance at this level.
While momentum favors buyers, short-term sellers are currently in control, as indicated by the Relative Strength Index (RSI) trending lower.
If XAU/USD drops below the September 13 low of $2,556, the next support levels to watch are $2,550 and $2,531. On the upside, breaching $2,600 could lead to further gains towards $2,650 and $2,700.
Gold FAQs
- Role of Gold: Gold serves as a store of value, a medium of exchange, and a safe-haven asset during turbulent times.
- Central Banks and Gold: Central banks hold significant Gold reserves to support their currencies and enhance economic strength.
- Gold Market Dynamics: Gold has an inverse correlation with the US Dollar and US Treasuries, making it a popular diversification asset.
- Factors Affecting Gold Prices: Geopolitical instability, economic recessions, and currency movements can influence Gold prices significantly.