Gold prices surged on Thursday following the Federal Reserve’s announcement of a 50-basis-point rate cut, as officials cited inflation moving towards the 2% target. Despite the rise in US Treasury yields, which are typically inversely correlated with gold, the precious metal continued its upward trend towards reclaiming $2,600. XAU/USD was trading at $2,589 at the time of writing, up over 1% from the previous day.
Fed Chair Jerome Powell emphasized the strength of the labor market and the need for cautious policy adjustments, stating that there is no rush to normalize rates. Powell also mentioned that the risks of inflation have diminished, while the labor market has improved. He indicated that the Fed could dial back policy adjustments more slowly if inflation persists according to the bank’s projections.
The US jobs data took center stage following Powell’s speech at Jackson Hole, with the US Labor Department reporting that the number of people filing for unemployment benefits was below expectations. Despite the rise in US Treasury yields, which saw the 10-year T-note yield at 3.74%, the US Dollar Index (DXY) dropped 0.31% to 100.62, failing to support the Greenback.
Looking ahead, Philadelphia Fed President Patrick Harker is set to speak amid a sparse economic calendar in the US. The Summary of Economic Projections from the Fed indicates that interest rates are projected to end at 4.4% in 2024 and 3.4% in 2025. Inflation is expected to reach the 2% target by 2026, with forecasts of 2.6% in 2024 and 2.2% in 2025. The US economy is likely to grow at a 2% pace in 2024, with the Unemployment Rate rising to 4.4% by the end of the year.
Gold price buyers are now targeting the $2,600 mark following the Fed’s decision. The uptrend in gold prices remains intact, with buyers needing to challenge the year-to-date peak of $2,599 to stay hopeful of conquering the $2,600 level. Momentum favors buyers, with the Relative Strength Index (RSI) pointing upwards in bullish territory. The first resistance for XAU/USD is at $2,599, followed by $2,600, $2,650, and $2,700. If the price drops below $2,556, the next support levels are $2,550, $2,531, and $2,485.
The Federal Reserve’s Interest Rate Decision is a crucial economic indicator that affects the US Dollar and financial markets globally. The Fed determines interest rates to achieve its dual mandate of inflation at 2% and full employment. Changes in interest rates impact the value of the USD, with rate hikes strengthening the currency and rate cuts weakening it. The tone of the Federal Open Market Committee (FOMC) statement following the decision is also important, as a hawkish tone signals expectations of future rate hikes, while a dovish tone indicates expectations of lower rates.
