Gold prices edge lower on the Fed’s hawkish tilt

Gold prices dropped from $2,765 to $2,750 per ounce on Wednesday but pared some losses later in the day. If gold prices rise, they may encounter resistance at $2,790 per ounce, while if gold prices decline, support may be encountered near $2,690 per ounce. 

Gold prices gained strength last week, nearing their all-time high of $2,790 per ounce, boosted by a weaker dollar and uncertainty over Donald Trump’s proposed tariffs. Uncertainty over Trump’s future policies and trade tariffs promotes a risk aversion sentiment, raising the appeal of safe-haven assets, such as gold. 

Gold prices have been typically directed by the dollar’s movement, as the competing gold loses appeal as an investment when the dollar rises. The dollar edged higher after the Fed policy meeting on Wednesday, and the dollar index rose from 107.8 to 107.9. US treasury yields remained steady, with the US 10-year bond yielding approximately 4.54%. 

Gold prices are under pressure by decreased Fed rate cut expectations. The US Federal Reserve held interest rates steady at its January meeting, which was concluded on Wednesday, after delivering three consecutive rate cuts in 2024. FOMC policymakers voted unanimously to maintain the federal funds range to a target range of 4.25% to 4.50%, which was in line with expectations. 

The Fed’s latest monetary policy statement did not include an earlier mention that US inflation is moving towards the central bank’s 2% target. Instead, the report stated that price pressures remain elevated, which points to a prolonged pause in rate cuts. The Fed’s statement highlighted that the US labor market remains robust and that the economy is expanding at a satisfactory pace. 

Fed Chair Jerome Powell delivered a mildly hawkish message after the policy meeting, putting pressure on gold prices. Powell stated that the Fed’s approach will remain data-driven and stressed that the central bank needs to consider potential policy changes under Trump’s administration. Market odds of another rate cut before summer dropped after Powell’s speech, with markets pricing in a rate cut in June at the earliest. 

Gold prices are gaining strength on market concerns over Trump’s future policies and trade tariffs. Trump has already announced a plan to impose 25% tariffs on imports from Canada and Mexico starting February 1 and he has hinted that his administration is considering universal tariffs on all imports to the US. 

Trump has been using threats of imposing trade tariffs as a negotiation tool to further his agenda with other countries. On Tuesday, newly appointed US Treasury Secretary Scott Bessent proposed tariffs on all US imports, which would start at 2.5% and could be gradually increased. Trump, however, stated that he wants more aggressive tariffs, saying that he will apply tariffs to chips, pharmaceuticals, steel, and copper. Trump’s comments triggered a risk aversion sentiment and demand for safe-haven assets rose, boosting gold prices.

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Written by:
Myrsini Giannouli

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