Gold prices experienced a significant fluctuation following a 50 basis points rate cut by the Federal Reserve (Fed) during the North American session. As a result, gold prices moved within a range of $2,565 to $2,600, with XAU/USD eventually dropping by more than 0.20%. The Fed also projected that the fed funds rate would reach 4.4% by the year 2024. Despite uncertainties in the economic outlook, Fed officials expressed confidence in approaching the 2% inflation target, emphasizing the balanced nature of their price stability and maximum employment mandates.
The Summary of Economic Projections (SEP) provided insights into the future interest rate estimates, with officials foreseeing 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 expected to reach its target in 2026, with projections indicating 2.6% in 2024 and 2.2% in 2025. Additionally, Fed officials project a 2% growth rate for the economy in 2024 and foresee the Unemployment Rate to rise to 4.4% by the end of the same year.
During Fed Chair Jerome Powell’s press conference, he emphasized the diminishing risks to inflation and reiterated the strength of the economy. Powell also highlighted the Committee’s cautious approach towards policy normalization based on the SEP projections. Meanwhile, US Treasury yields climbed to 3.67%, while the US Dollar Index (DXY) fell by 0.54% to 100.49, hitting a new yearly low of 100.24.
Looking ahead, the December 2024 fed funds rate futures contract suggests the possibility of further rate cuts in 2024, with two 25 basis points rate cuts anticipated in the upcoming meetings. Economic indicators such as US Building Permits and Housing Starts show positive growth, reflecting a resilient housing market amid economic uncertainties.
In terms of technical analysis, the XAU/USD pair continues to display volatility, with a bullish trend despite a pullback from the $2,600 level. The Relative Strength Index (RSI) points towards short-term selling pressure, with key support levels at $2,556, $2,550, and $2,531. On the upside, resistance levels are seen at $2,600, $2,650, and $2,700, with a breach above indicating potential further upside momentum.
Gold’s role as a safe-haven asset and its historical significance in human history have positioned it as a valuable investment during turbulent times. Central banks, notably the largest holders of gold, rely on the precious metal to diversify their reserves and support their currencies during economic uncertainties. The inverse correlation between gold and the US Dollar, as well as its relationship with risk assets, further enhance its appeal as a hedge against inflation and currency depreciation.
Overall, the recent developments in gold prices reflect the impact of key economic decisions and indicators on the precious metal’s value. With continued market volatility and economic uncertainties, gold’s status as a safe-haven asset and its historical significance as a store of value underscore its relevance in modern investment strategies.
