Gold rebounds to near $4,100 as Fed leaves interest rates unchanged

Gold price gains traction to near $4,095 in Thursday’s early Asian session.
Fed held the benchmark federal funds rate in a range of 3.5% to 3.75% at its July policy meeting.
Trump said the US would strike back at Iran after a recent attack that targeted a military base in Jordan.

Lallalit Srijandorn FXStreet

Gold price (XAU/USD) rebounds to around $4,095 during the early Asian session on Thursday. The precious metal edges higher after the US Federal Reserve (Fed) decided to leave interest rates unchanged, a hold delivered over three dissenting votes and against a fresh eruption of fighting between the US and Iran.

As expected, the Fed left the Federal Funds Rate in its current target range between 3.50% and 3.75% at its July policy meeting on Wednesday. However, the statement showed that three committee members voted for a 25-basis-point rate hike at this meeting.

Fed Chairman Kevin Warsh said during the press conference that tightening in the market has done quite a bit of work for policymakers. He added that the committee will be quick to act if inflation pressures accelerate.

Iran’s Islamic Revolutionary Guard Corps (IRGC) fired ballistic missiles overnight at a US airbase and command center in Jordan, all of them intercepted, per Bloomberg. The US and Saudi Arabia also struck Tehran-backed militias in Iraq, ending a days-long pause in hostilities.

US President Donald Trump said on Wednesday that Washington would strike back at Iran after a recent attack that targeted a military base in Jordan. “We’ll be hitting them hard,” said Trump. “They’re going to get a beating,” he added. Ongoing tensions in the Middle East could push crude oil prices up and prompt central banks to hold rates at elevated levels for longer, weighing on gold's appeal as a non-yielding asset.

Gold outlook supported as Commerzbank questions Fed hike pricing

Analysts at Commerzbank acknowledge the recent weakness in Gold but argue that the downside may be overdone, seeing scope for prices to rebound from here. They stress that “there is potential for the gold price to recover from its current level,” as they “consider current market expectations of Fed rate hikes to be excessive” and instead “anticipate that Fed interest rates will remain unchanged until the end of the year.” In their view, a less aggressive Fed path than currently priced would provide a more supportive backdrop for Gold over the coming quarters.

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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