Gold price waver as Fed delivers hawkish hold
- Federal Reserve's hawkish hold omits specific inflation terms, hinting at rate pause, affecting gold markets.
- U.S. Treasury yields rise, 10-year note at 4.581%; dollar strengthens to 108.29 on DXY, up 0.22%.
- Gold traders incur moderate losses, awaiting further details from Fed Chair Powell's press conference.
Gold prices slumped as the US Federal Reserve (Fed) delivered a hawkish hold. The Fed removed inflation language, an indication of a pivot towards maintaining rates unchanged. The XAU/USD trades volatile within the $2,750 - $2,740 range.
XAU/USD fluctuates after the Fed's decision to hold rates
On its monetary policy statement, the Fed acknowledged the labor market remains solid, though emphasized that risks to achieving the dual mandate goals "are roughly in balance." They added that economic activity continued to expand solidly, and officials would remain attentive to risks on both sides of its dual mandate, and the balance sheet reduction would continue at its previous pace.
The Fed's decision was unanimous.
After the data US Treasury yields are rising, particularly the US 10-year Treasury note yield, up four basis points to 4.581%. The Greenback rose as high as 108.29 as depicted by the US Dollar Index (DXY), which gains 0.22% at the time of writing.
Given the backdrop, Gold prices extended their losses, yet they were quite moderate, as traders await Fed Chair Jerome Powell's press conference.
Gold's reaction to Fed´s Decision
XAU/USD extended its losses toward the 200-hour Simple Moving AVerage (SMA) at $2,743. Still buyers are leaning onto that level, which if surpassed, would pave the way to test the January 27 low of $2,730, followed by the $2,700 mark. On the other hand, if bulls push prices above the day's high of $2,766, it could open the door to test record highs.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.