Gold surges as Fed ease rate hikes

Gold prices surged on Wednesday after the US Fed scaled back its interest rate hikes, and gold was catapulted above $1,950 per ounce. If gold prices continue to increase, resistance may be encountered near the psychological level of $2,000 per ounce, while if gold prices decline, support may be found near $1,896 per ounce.

Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar plummeted after the conclusion of the Fed meeting, with the dollar index touching 101.1. US Treasury yields retreated, with the US 10-year bond yielding below 3.40%

Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise. After a series of aggressive rate hikes last year, the Fed has finally decided to relax its hawkish policy, boosting gold prices. The Federal Reserve raised interest rates by only 25 basis points at Wednesday’s meeting, bringing the benchmark interest rate to a target range of 4.50% to 4.75%. 

Fed Chair Jerome Powell, at his press conference after the conclusion of the meeting, defended the central bank’s decision to relax its hawkish policy. Powell expressed his satisfaction with the ‘disinflation’ process but emphasized that ongoing rate hikes are appropriate since substantial evidence is necessary that inflation is under control.

US inflation seems to be cooling, providing support for gold prices. As the Fed and other central banks start to scale back their aggressive rate hiking, gold prices surge. Even though inflation rates remain high, signs of cooling price pressures have reduced rate hike expectations, providing support for gold prices. Gold prices are approaching overbought territory though, as they trade close to levels reached only after the crisis in Ukraine started last year.

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Written by:
Myrsini Giannouli

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