Gold price hovers around $2,690 as Fed cut reinforces safe-haven appeal

Gold gains after Fed cuts rates by 25 bps, in line with expectations.
Fed notes balanced risks but economic uncertainty, supporting Gold’s safe-haven allure.
Powell’s upcoming remarks may offer further insights into the Fed’s rate path and economic vigilance.

Christian Borjon Valencia FXStreet

Gold prices held firm and posted gains of over 1% after the Federal Reserve (Fed) lowered interest rates by 25 basis points (bps), as expected. Yet, per the golden metal reaction, it seems that it was already priced. The XAU/USD trades at $2,692 after bouncing off a daily low of $2,643.

XAU/USD climbs to $2,692 as investors weigh Fed’s cautious outlook on inflation and economic expansion.

The statement highlights that Fed officials observed solid economic expansion, even though labor market conditions have softened. They remarked that inflation has moved closer to the Fed’s 2 percent target but remains somewhat elevated.

Fed policymakers also noted that the risks of meeting their dual mandate are “roughly balanced” but acknowledged uncertainty in the economic outlook. They will remain vigilant to risks on both sides of the mandate.

The FOMC will consider new data, the evolving outlook, and the balance of risks when making future decisions. The decision was unanimous, with Governor Michelle Bowman supporting the rate cut.

Concerning the balance sheet, Fed officials plan to continue reducing their holdings of Treasury, agency debt, and agency mortgage-backed securities.

Next would be the Fed Chair Jerome Powell's press conference at 14:00 ET.

XAU/USD Price Chart – Daily

Gold rebounded at around the 50-day Simple Moving Average (SMA) at $2,639 and aimed towards the $2,700, but buyers lacked the strength of push prices higher. The first key resistance area for bulls would be $2,700; if cleared, the next stop would be the 20-day SMA at $2,716, ahead of $2,750.

On the other hand, a drop below November’s 6 low of $2,652 could push the yellow metal to challenge $2,639, ahead of testing the October 10 low of $2,603.

Economic Indicator

Fed Interest Rate Decision

The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).

EUR/USD deflates to fresh lows, targets 1.1600

The selling pressure on EUR/USD now gathers extra pace, prompting the pair to hit fresh multi-week lows in the 1.1625-1.1620 band on Friday. The continuation of the downward bias comes in response to further gains in the US Dollar as market participants continue to assess the mixed release of US Nonfarm Payrolls in December.

GBP/USD breaks below 1.3400, challenges the 200-day SMA

GBP/USD remains under heavy fire and retreats for the fourth consecutive day on Friday. Indeed, Cable suffers the strong performance of the Greenback, intensified post-mixed NFP, and trades at shouting distance from its critical 200-day SMA near 1.3380.

Gold flirts with yearly tops around $4,500

Gold keeps its positive bias on Friday, adding to Thursday’s advance and challenging yearly highs in the $4,500 region per troy ounce. The risk-off sentiment favours the yellow metal despite the firmer tone in the Greenback and rising US Treasury yields.