50 Basis Point Fed Interest Rate Cut Pushes Gold Prices to Highs, But Dollar Recovers on "Soft Landing" Sentiment
The Federal Reserve has announced an interest rate cut of 50 basis points (bps) at the FOMC meeting earlier this morning, lowering interest rates to a range of 4.75%-5.0%.
This move was accompanied by the Fed's Summary of Economic Projections (Dot Plot), which signaled 100 bps overall interest rate cuts in 2023 and 2024.
This signals the Fed's aggressive efforts to revive the US economy.
The initial market reaction has seen the US dollar (USD) fall to record lows, as US Treasury bond yields also declined.
This massive selloff has pushed gold prices to new highs around $2,600, reflecting increased demand for commodity assets in a lower interest rate environment.
However, gold was seen facing resistance at the $2,600 level, and then dropped back down and traded close around the $2,560 level yesterday.
Gold Price Drops Amid Dollar Recovery
The decline in gold has been fueled by a sudden rise in the value of the US dollar. Although the big rate cut had been expected by the market, the prospect of US economic "sentiment" has managed to revive demand for the dollar.
Expectations that a major rate cut could avert a recession in the country also helped the dollar to recoup some of the early losses suffered ahead of yesterday's FOMC, reducing the appeal of demand for safe-haven assets such as gold.
The recovery of the dollar continued in the early Asian trading session today, seen to have put pressure on gold prices.
Investors are now focused on US economic data which will further assess whether the Fed's rate cutting cycle will continue at an aggressive rate as stated in the FOMC press conference yesterday.
However, gold is seen to continue to be supported by demand, especially as geopolitical tensions continue in the Middle East, which is seen to be able to give an additional boost to the gold market.
Middle East Tensions and Interest Rate Cut Expectations Support Gold Prices
The re-escalation of tensions between Israel and Hezbollah is seen to have further strengthened gold's role as a safe-haven asset, as investors are seen to be closely monitoring developments in the situation.
In addition, market players are now also factoring in interest rate cuts at the upcoming FOMC meeting this year, with expectations for a 25 bps reduction at the Fed meetings in November and December.
These factors together can limit the risk of a drop in gold prices, even if the dollar is expected to recover.
Gold Price Technical Analysis: "Bullish", But "Volatile"
From a technical point of view, the gold market still remains in a bullish trend based on the daily chart. Any fresh rise in gold prices could see prices test the recent highs of $2,590 before testing the psychologically important level of $2,600 once again.
If the price manages to break through this level, it could pave the way for the price to move at least to the $2,650 level.
But on the other hand, if the "Correction" decline continues, the price of gold can test the previous day's low at $2,547.
A continued decline below this level could open the way for a more drastic decline around $2,532 seen as the main "" price.
However, if gold sales pressure increases, $2,524 will be the main obstacle.
As markets continue to focus on Fed policy and global geopolitical developments, volatility is expected to remain high in the near term, with gold's direction closely dependent on the broader macroeconomic and geopolitical landscape.
