- Gold registers gains of over $0.20 following the Fed’s less dovish approach.
- Economic data shows US economic growth at 3.1% YoY in Q3.
- Potential US government shutdown looms, enhancing Gold’s appeal as a safe-haven asset amidst uncertainty.
On Thursday, the Gold price trimmed some of its losses from Wednesday, posting a timid advance of 0.20%. Thursday’s minor gain follows the Federal Reserve’s (Fed) decision to adopt a more gradual stance, pushing against three interest rate cuts for 2025. The XAU/USD trades at $2,588 after reaching a daily high of $2,626.
The US economic docket on Thursday witnessed a drop in Americans asking for unemployment benefits. In the meantime, US GDP grew 3.1% YoY in Q3 in its final release, according to the US Bureau of Economic Analysis.
Despite this, the financial markets are focused on deciphering what will happen in 2025. Fed Chair Jerome Powell and the Federal Open Market Committee (FOMC) board reduced borrowing costs by 25 basis points. It wasn’t unanimous, however, as Beth Hammack of the Cleveland Fed voted to maintain the “status quo.”
In addition, Fed officials have turned their attention to inflation, as expressed in the dot plot. They forecast two 25 bps rate cuts in 2025 and two more for 2026.
In the meantime, the US government is only days away from being shut down with US President-elect Donald Trump pressuring Republicans in the House of Representatives to increase or eliminate the debt ceiling.
Additionally, Reuters cited Politico sources that US Speaker Johnson and President-elect Trump’s team are encircling a new federal funding stop-gap plan that includes disaster aid, pushing off a debt limit fight for two years, and agreeing to a one-year farm bill extension.
A possible government shutdown would push Bullion prices higher due to its safe-haven status amid political uncertainty, which tends to thrive in a low-interest environment.
Ahead this week, the economic docket will feature the release of the core Personal Consumption Expenditures (PCE) Price Index, the Fed’s favorite inflation gauge, and the University of Michigan (UoM) Consumer Sentiment poll.
Daily digest market movers: Gold price holds to gains below $2,600
- Gold prices climb amid rising US real yields, which are up by three basis points to 2.248%, a headwind for the precious metal.
- The US 10-year Treasury bond yield rose five basis points to 4.568% after the Fed’s decision.
- The US Dollar Index, which tracks the performance of the American currency against six others, surged 0.16% to 108.39.
- Initial Jobless Claims in the US for the week ending December 14 dipped from 242K to 220K, below forecasts of 230K, an indication that the labor market remains solid.
- The Gross Domestic Product in Q3 ended at 3.1%, above estimates of 2.8% and up from 3% in Q2.
- Federal Reserve officials estimate inflation to end 2024 at 2.8% , 2.5% in 2025, and 2.2% in 2026.
- Policymakers project the economy to grow by 2.5% in 2024, 2.1% in 2025, and 2% in 2026.
XAU/USD technical outlook: Gold upside limited by 100-day SMA
Gold price uptrend is intact, though it’s facing stir resistance at the 100-day Simple Moving Average (SMA) at $2,605 and the psychological $2,600 figure. In the short term, momentum favors sellers as depicted by the Relative Strength Index (RSI) below its neutral line.
For a bearish resumption, bears need to clear the $2,550 figure, followed by the November 14 swing low of $2,536. If surpassed, the next stop would be the $2,500 level.
For a bullish resumption, the XAU/USD must clear $2,600, then $2,650, and the 50-day SMA at $2,670. Once cleared, the next stop would be $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.
