Gold prices skyrocket on dovish Fed

Gold prices skyrocketed after the Fed policy meeting on Wednesday, rising above the key $2,450 per ounce level. If gold prices rise, resistance may be encountered near $2,484 per ounce, while if gold prices decline, support may be encountered near $2,350 per ounce. 

Gold prices are affected by central banks’ interest rates. A restrictive monetary policy hinders economic growth lowering the global economic outlook and putting pressure on gold prices. The Federal Reserve kept interest rates steady within a target range of 5.25% to 5.50% at its policy meeting on Wednesday but hinted at a rate cut in September. The FOMC statement released after the meeting had a dovish bias, boosting gold prices.

Fed Chair Jerome Powell’s press conference after the meeting also had dovish undertones, propping up gold prices. Powell stated that the central bank aimed to keep interest rates steady in July and to discuss the possibility of a rate cut at a future meeting. 

Markets interpreted Powell’s comments to mean that the central bank is planning to start cutting interest rates in September. Currently, a 25-basis points rate cut in September is fully priced in. Moreover, after Powell’s speech, market odds of a second rate cut within the year have gone up.

Gold prices have experienced a meteoric rise in the past few months and are trading in overbought territory. Geopolitical tensions raise the appeal of safe-haven assets boosting gold prices. Concerns that the crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets keeping gold prices high. Gold prices gained strength this week after a rocket strike by Hezbollah in the Israeli-occupied Golan Heights over the weekend raised concerns of an all-out war in the region. Reports that Hamas leader Ismail Haniyeh was killed by an Israeli missile strike in Iran drove gold prices up on Wednesday. The death of the Hamas leader is likely to lead to retaliatory attacks against Israel and aggravate the situation in the Middle East further. 

Gold prices have been typically 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 Fed policy meeting on Wednesday and the dollar index dropped below the 104.1 level. US treasury yields declined, putting pressure on the dollar, with the US 10-year bond yield dropping to 4.07%.

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Written by:
Myrsini Giannouli

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