Gold soars on Fed’s decision to hold rates

Gold rallies and trades between $2,150 and $2,180 after the Federal Reserve’s latest policy meeting.
Fed keeps interest rates steady but adjusts its longer-term FFR projections for 2025, highlighting ongoing inflation challenges.
Economic projections show an optimistic view for 2024 GDP growth, with core inflation expectations slightly elevated.
US 10-year Treasury yields dip slightly, contributing to the dollar’s decline and supporting gold’s upward movement.

Gold price rallies sharply as the Federal Reserve decided to keep rates unchanged but upward revised the Federal Funds Rates (FFR) projections for 2025. At the time of writing, XAU/USD trades aggressively within the $2,150-$2,170 area, posting gains.

The US central bank has kept rates at 5.25%-5.50% unchanged and maintained their balance sheet reduction at the same pace since May 2023. In their statement, Fed officials underscored the US economy’s solidity and the labor market’s robustness. They have acknowledged the progress on inflation but have also emphasized that the job is not yet complete. They have stated that the risks to achieving their dual mandate are moving into a better balance, and they will continue to rely on data for their decisions.

After posting two months of surprisingly high inflation reports, the Federal Reserve tweaked its monetary policy expectations for 2025, though for 2024 the median stood at 4.6% as in December. Nevertheless, they upward revised the FFR from 3.6% to 3.9% in 2025. Additional figures were updated:

The Gross Domestic Product (GDP) for 2024 was revised to 2.1% up from 1.4% in December.
The Unemployment Rate was not revised, as is expected to remain at 4.0% down from 4.1%.
The Personal Consumption Expenditure (PCE) Price Index target wasn’t changed, remaining at 2.4%, while core PCE is estimated to end 2024 at 2.6%, up from 2.4%.

After the data release, Gold hit a daily high of $2,175.11 and remains near the session’s highs. The US 10-year Treasury yield is down two basis points to 4.275%, while the Greenback is under pressure.

Daily digest market movers: Gold stays firm amid weak US Dollar

The Federal Reserve’s Summary of Economic Projections in December showed that policymakers expected GDP in 2024 to be at 1.4% and the Unemployment Rate to be at 4.1%.
Regarding inflation figures, the Core Personal Consumption Expenditure (PCE) Price Index, favored by Fed Chair Jerome Powell for tracking inflation, is predicted to fall to 2.4% in 2024, aligning with the general PCE forecast.
December’s Dot Plot suggested that Fed officials were expecting the FFR to end at 4.6%, down from 5.1%. However, if the median moves to 4.8%, that would imply Powell and company are expecting two rate cuts for 2024.
The latest US economic data witnessed mixed business activity readings, making it challenging to predict the pace of economic deceleration in the US. The labor market has shown signs of cooling, though the economy added more people to the workforce than expected, while fewer people applied for unemployment benefits.
Recent inflation data in the US showed that inflation on the consumer and producer side surprised to the upside, suggesting that inflation is stickier than expected.
Given the backdrop, Fed Chair Jerome Powell’s testimony at the US Congress earlier this month, suggesting the Fed would begin to cut borrowing costs, were justified. However, last week’s inflation figures and Retail Sales data triggered a repricing of Fed rate cut bets, aligning with the US central bank’s view of 75 basis points of easing toward the end of 2024.
According to the CME FedWatch Tool, expectations for a June rate cut stand at 64%, down from 72% a week ago.

Technical analysis: Gold traders push XAU/USD north of $2,150

XAU/USD price hovers around $2,150 unmoved ahead of the FOMC decision. A dovish tilt could open the door for a rally that prompts a jump in Gold prices, opening the door to challenge the all-time high (ATH) at $2,195.15. A retest there would expose $2,200 next.

On the other hand, if Gold spot price tumbles below $2,150, look for a breach below December’s 3 high, exposing the March 6 low of $2,123.80, followed by $2,100.

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.

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