Gold prices increased on Thursday after the Federal Reserve decided not to change interest rates. XAU/USD was trading at $3,296, showing a 0.61% rise. The US Dollar’s stability, supported by strong economic data, impacted the market positively. The Fed maintained the fed funds rate at 4.25%-4.50% with a 9-2 vote. Fed Chair Jerome Powell emphasized a cautious approach towards future policy adjustments. Economic indicators like the core Personal Consumption Expenditures (PCE) Price Index rising and a decrease in unemployment claims point towards stable employment and inflation.

Trade Developments And Gold

The US and Mexico have extended a tariff agreement for 90 days, and a deal with South Korea has eased trade tensions. Following the Fed’s decision, gold prices seemed oversold, leading to increased buying near July’s lows, as traders look ahead to the upcoming Nonfarm Payroll data. Falling US Treasury yields have also supported gold prices, along with a slight increase in the US Dollar Index. US jobless claims dropped to 218K, and PCE inflation metrics were somewhat higher than expected, indicating economic strength. The Fed’s latest policy statement described economic activity as moderating. GDP growth has exceeded expectations, even with slowed consumer spending. Gold prices are expected to stabilize, influenced by technical resistance levels. Central banks, the largest holders of gold, significantly increased their reserves in 2022. Gold prices tend to move inversely to the US Dollar and treasury yields. Political instability can enhance gold’s appeal as a safe-haven asset. Gold market movements also depend on interest rates and the Dollar’s value, which affect its role as a hedge against currency depreciation and inflation. With the Federal Reserve keeping interest rates steady, gold has experienced relief from further hike pressure. This pause has pushed US 10-year Treasury yields below the important 4.0% level, which makes non-yielding gold more attractive. We view this as a significant change in the market, supporting higher prices in the near future.

Economic Data And Market Reactions

The latest Nonfarm Payrolls report indicated that the economy added 155,000 jobs, falling short of the 180,000 expected. This weaker data confirms the economic slowdown that the Fed mentioned, decreasing the likelihood of any future rate hikes. Consequently, derivatives may experience less risk of downturns and greater potential for rises in the coming weeks. We’re seeing an increase in demand for call options, especially for September and December contracts, indicating a bullish outlook. Since prices have bounced back from July’s lows around $3,250, traders recognize a strong technical support level. This situation suggests that buying calls or bull call spreads could be a preferred strategy to capture possible gains while managing risk. Looking back, the significant gold purchases by central banks in 2022 were not just a one-time occurrence. Data from the World Gold Council shows that strong official sector buying continued into 2023 and 2024, providing solid price support. Steady demand from these major players limits how much prices might drop during pullbacks. This scenario resembles the Fed’s policy pause in 2018, leading up to a major gold rally that lasted until 2020. Historically, when the Fed halts hikes while the economy remains strong, it creates a favorable environment for gold. We might be entering a similar phase now, where the market begins to anticipate rate cuts ahead of time. Create your live VT Markets account and start trading now.

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