Gold steady above $2,500 as Fed minutes signal possible rate cuts
- Gold remains stable at around $2,500 after FOMC minutes suggest potential easing if economic data aligns.
- Fed officials express growing confidence in inflation control, eyeing a 25 bps cut at the next meeting.
- US Dollar weakens, DXY down 0.30%, with 10-year Treasury yields falling to 3.769%, supporting gold prices.
Gold price remains steady at around $2,500 after the Federal Reserve revealed its latest meeting monetary policy minutes, which hinted the US central bank could cut interest rates. At the time of writing, XAU/USD has trimmed its earlier losses, and its virtually unchanged.
XAU/USD holds firm as FOMC hints at rate cuts, trimming earlier losses
The Federal Open Market Committee (FOMC) minutes showed that most participants said, “it would likely be appropriate to ease policy at the next meeting if data continued to come in as expected.” Furthermore, the minutes added that the recent progress on inflation and the increase in the unemployment rate warranted a 25-basis point (bps) rate cut at the July meeting.
The minutes showed that officials are gaining confidence that inflation is moving toward the 2% goal and that risks to the employment goal have increased.
The golden metal reacted upwards on the release, while the Greenback’s sustaind losses of over 0.30%, as the US Dollar Index (DXY) sits at 100.99. In the meantime, US Treasury bond yields are falling, with the US 10-year Treasury note yield down four basis points to 3.769%.
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.
Author
Christian Borjon Valencia
FXStreet
Christian Borjon began his career as a retail trader in 2010, mainly focused on technical analysis and strategies around it. He started as a swing trader, as he used to work in another industry unrelated to the financial markets.
