Gold Prices Surge Following Fed’s Rate Cut
- Gold prices surged after the Federal Reserve (Fed) announced a 50 basis point rate cut.
- Fed Chair Powell emphasized the strength of the labor market and cautious policy adjustments.
- US jobs data shows resilience despite rising US Treasury yields impacting the Greenback.
On Thursday, gold prices saw an uptick following the Fed’s decision to cut rates by 50 basis points. Despite the rise in US Treasury yields, which typically have an inverse relationship with gold, the precious metal continued its upward trajectory towards the $2,600 mark. Currently, XAU/USD is trading at $2,589, reflecting a gain of over 1%.
Fed’s Position on Rate Cuts
Officials at the Fed opted for the larger of the two expected rate cuts, citing inflation moving steadily towards the central bank’s 2% target. Fed Chair Jerome Powell highlighted the strength of the labor market and emphasized the Fed’s ability to maintain this strength through policy adjustments.
Powell noted that the risks of inflation had diminished, and while acknowledging the rise in the labor market, he stressed that the Fed was in no rush to normalize policy. The Fed projects a gradual approach to policy adjustments, indicating a cautious stance towards rate hikes.
US Jobs Data and Market Response
Following Powell’s speech at Jackson Hole, the spotlight turned to US jobs data, which revealed that the number of people filing for unemployment benefits was below expectations, signaling strength in the labor market. Despite the rise in US Treasury yields, the US Dollar Index (DXY) dropped by 0.31% to 100.62, indicating a lack of support for the Greenback.
Market Movers and Economic Projections
- Fed Governor Michelle Bowman voted for a quarter-point rate cut at the September FOMC meeting.
- The Summary of Economic Projections suggests interest rates to end at 4.4% in 2024 and 3.4% in 2025, with inflation projected to reach its 2% target by 2026.
- US economy expected to grow at a 2% pace in 2024, with the Unemployment Rate projected to rise to 4.4% by year-end.
- US Initial Jobless Claims for the week ending September 14 below expectations at 219K.
- US Existing Home Sales declined 2.5% MoM in August, marking the fourth consecutive decrease.
- December 2024 fed funds rate futures suggest potential rate cuts by at least 69 basis points.
Technical Outlook for XAU/USD
Despite Wednesday’s Shooting Star candlestick pattern, the uptrend in gold prices remains intact. Buyers aim to challenge the year-to-date peak of $2,599 to target the $2,600 mark.
The Relative Strength Index (RSI) indicates bullish momentum, with room for further upside. Resistance levels for XAU/USD include $2,599, $2,600, $2,650, and $2,700. On the downside, support levels are at $2,556, $2,550, $2,531, and $2,485.
Gold FAQs
- Gold serves as a store of value, safe-haven asset, and a hedge against inflation.
- Central banks hold significant gold reserves to support their currencies in times of economic uncertainty.
- Gold has an inverse correlation with the US Dollar and risk assets, making it a diversification tool in portfolios.
- Various factors, including geopolitical instability and interest rates, impact gold prices.