Market Data 
- Gold prices fall following a 50 bps Fed rate cut; officials project fed funds rate to reach 4.4% by 2024.
- Fed expresses confidence in nearing 2% inflation target, despite economic uncertainties and balanced mandates.
- US Treasury yields climb to 3.67%; US Dollar Index dips 0.54% to 100.49, hitting new yearly low of 100.24.
Gold prices fluctuated within the $2,565-$2,600 range during the North American session after the Federal Reserve (Fed) cut rates by 50 bps. The Fed also projected that the fed funds rate would end 2024 around 4.4%, according to the median estimate. At the time of writing, XAU/USD had erased its previous gains and is down by over 0.20%.
Fed policymakers decided to lower borrowing costs as they grew confident that inflation is moving “sustainably” toward the bank’s 2% goal. However, they acknowledged that the dual mandate on price stability and maximum employment are roughly balanced while noting that the economic outlook is uncertain.
It is worth noting that there was a dissenter in the vote as Governor Michelle Bowman voted to lower rates by a quarter of a percentage point.
The Summary of Economic Projections (SEP) shows officials estimate interest rates to end at 4.4% in 2024 and 3.4% in 2025. Meantime, inflation as measured by the Core Personal Consumption Expenditures Price Index (PCE) is foreseen reaching its target in 2026, though it’s projected to end at 2.6% in 2024 and 2.2% in 2025.
Fed officials project that the economy will grow at a 2% pace in 2024 and the Unemployment Rate to edge up to 4.4% by the end of the year.
In the meantime, Fed Chair Jerome Powell’s press conference is underway. He said that risks to inflation have diminished and reaffirmed that the economy is strong. Powell added that if inflation persists, “we can dial back policy more slowly,” and he added that, according to the SEP, the Committee is not in a rush to normalize policy.
In the meantime, US Treasury yields are rising two-and-a-half basis points at 3.67%, while the Greenback plunges. The US Dollar Index (DXY), which tracks the buck’s performance against six currencies, tumbles 0.54% to 100.49 after reaching a new yearly low of 100.24.
Daily digest market movers: Gold price drops on volatile session
- December 2024 fed funds rate futures contract suggests that the Fed might lower rates by at least 108 basis points, implying that in the following two meetings, they expect two 25 bps rate cuts left in 2024.
- US Building Permits in August grew by 4.9% MoM from 1.406 million to 1.475 million.
- Housing Starts expanded by 9.6% and rose from 1.237 million to 1.356 million.
XAU/USD technical outlook: Gold price hits $2,600, then retreats amid Powell’s press conference
Gold price remains volatile during the North American session, but it remains bullish after hitting a new all-time high of $2,600. However, buyers failed at the latter, which could pave the way for a pullback.
Momentum favors buyers, though short-term sellers are in control, as the Relative Strength Index (RSI) aims lower.
If XAU/USD drops below the September 13 low of $2,556, the next support would be $2,550. Once cleared, the next stop would be the August 20 high, which turned into support at $2,531, before aiming toward the September 6 low of $2,485.
On the upside, if Gold continues to rally, the first resistance would be $2,600. A breach of the latter will expose the psychological levels $2,650 and $2,700.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
