Gold prices surge on anticipation of Fed rate cuts

Gold prices were catapulted to the $2,065 per ounce level on Thursday as the dollar weakened. If gold prices increase, resistance may be encountered near $2,079 per ounce, while if gold prices decline, support may be encountered near $2,010 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. Dollar price was volatile on Thursday. The dollar index rose to the 103.8 level in early trading but dropped below 103.0 later in the day as markets had time to digest Wednesday’s Fed announcement. US treasury yields continued to decline, with the US 10-year bond yielding approximately 3.87%.                  

Gold prices were volatile on Wednesday after the US Federal Reserve monetary policy meeting. The Fed kept interest rates unchanged on Wednesday, within a target range of 5.25% to 5.50%, which was in line with expectations. The Fed, however, has removed the tightening bias from its policy statement, indicating that the central bank is preparing to pivot to a less restrictive monetary policy. The release of the FOMC statement pushed the dollar and treasury yields down, boosting gold prices. 

Fed Chair Jerome Powell’s press conference after the meeting attracted a lot of attention as traders focused on the central bank’s forward guidance. Powell’s speech caused market volatility as the Fed Chair stated that there would be no rate cuts in March, dashing some investors’ hopes. 

Rate cut expectations in March dropped rapidly after Powell’s statement, while market odds that the Fed will cut interest rates in May and June are rising rapidly. The dollar surged after Powell’s speech, which balanced out the FOMC statement’s dovish outlook, causing gold prices to plummet. Markets had time to digest the Fed’s message on Thursday and renewed Fed rate cut expectations in May propelled gold prices upwards. 

Gold prices were boosted earlier in the week as the International Monetary Fund upgraded its global economic growth outlook. The IMF raised its global growth forecast for 2024 to 3.1%, from 2.9% in October. The organization based its updated estimate mainly on increased economic growth in the US and China and on cooling inflationary pressures.

Gold prices are propped up by rising geopolitical tensions, which raise the appeal of safe-haven assets. Concerns that the Geopolitical crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets, boosting gold prices. The war between Israel and Hamas is threatening to spill over the Middle East as tensions rise in the Red Sea area. 

Attacks on ships in the Red Sea area by Yemen's Iran-backed Houthi militia increase concerns that the crisis will widen to other areas in the region. The US and the UK have launched a coordinated action against Houthi rebels in Yemen. A deadly drone attack against US forces over the weekend intensified tensions in the Middle East, boosting gold prices. The US has accused Iran of being behind the attack and has threatened to retaliate, although the Iranian government denies any involvement in the drone attacks. 

TRADE GOLD

The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.

Written by:
Myrsini Giannouli

Share the article: