- Gold fluctuates around $3,035-$3,050, and earns after the Fed holds interest rates and slows down balance sheet cuts.
- Powell cites growing economic uncertainty and tariff-driven inflation. The Fed expects two interest rate cuts in 2024.
- Geopolitical tensions As Russia's Ukraine speaks of a ceasefire, Israel intensifies airstrikes and raises demand for safe havens.
Gold prices rose sharply, reaching a new all-time high of $3,052 as U.S. Federal Reserve Chairman Jerome Powell spoke on Wednesday following his decision to hold the changed interest rate. At the time of writing, XAU/USD trades volatiles within the $3,035-3,050 range, exceeding 0.20%.
The Fed has decided to keep the rates changing in the 4.25%-4.50% range and tweaked its balance sheet, which is expected to disappear in April. The Fed acknowledged that the labour market situation remains solid, but pointed out that inflation is rising “somewhat” and reaffirmed its commitment to monitoring risks on both sides of the dual mission.
The Fed's economic forecast suggests that officials are hoping to cut two interest rates this year. The Fed's funding rate is projected to remain at 3.9%, which has not changed since its December forecast. Other forecasts such as inflation and unemployment have been revised upwards.
Meanwhile, the US economy is expected to fall below the 2% threshold, indicating it has become slightly vulnerable in President Donald Trump's trade policy.
Following the US Central Bank's decision, Jerome Powell stood up. He said “the uncertainty about (economic) outlook has increased,” adding that some tariff inflation has been handed over to consumers. Powell commented, “Our current policy stance is in a position to address the risks and uncertainties we face.”
Turning to geopolitics, hostilities between Russia and Ukraine continued despite talks to achieve a 30-day ceasefire from attacking energy facilities. Meanwhile, conflict in the Middle East escalated, with Israeli airstrikes killing 400 people on Tuesday, according to Reuters.
Daily Digest Market Mover: Gold Prices Ready to Extend Rally as Actual Yields Plump
- The US 10-year T-note yield drops from 3 basis points (BPS) to 4.254%. At the same time, the US Dollar Index (DXY), which tracks the performance of the back against a basket of six currencies, will rise by 0.27% to a maximum of 103.54.
- The US real yield was measured by the yield on the US 10-year Treasury Department Inflation Protection Securities (TIPS) and correlated inversely with gold prices, bringing five and a half BPS down to 1.935% via Reuters.
- The Federal Reserve Economic Forecast Summary (SEP) includes forecasts for interest rates, growth, labor markets and inflation.
- The Fed's funding rate is expected to be 3.9% in 2025, 3.4% in 2026 and 3.1% in 2027. The US economy is projected to increase from 2.1% to 1.7% in 2025. It is projected to remain at 1.8% in 2026 and 2027.
- Unemployment is expected to approach the 4.3%-4.4% range from 2025 to 2027, while PCE inflation will end at 2.7% in 2025, 2.2% in 2026 and 2% in 2027.
- Finally, core PCE is projected to close at 2.5% to 2.8% this year. Until 2027, we will be immersed in our Fed target of 2%.
- The money market was priced at 65.5 basis points of Fed easing points in 2025, which caused the Treasury to plummet along with US currency.
Xau/USD Technical Outlook: Gold price is set to conquer $3,000 and finish above that level
The gold uptrend remains intact, poised to expand its profits and challenge the $3,100 figure. The precious metal has already printed a record high of $3,052 and cleared the psychological mark of $3,050, but it has not had the power to decisively aim to reach a new milestone.
I bought too much relative strength index (RSI), but the intensity of the uptrend leaves me shy to reach 80 levels.
Conversely, if Xau/USD falls below $3,000, initial support will be $2,954, followed by the $2,900 mark on February 20th every day.
Gold FAQ
Gold has played an important role in human history as it is widely used as a medium of value and exchange. Apart from the gem's brilliance and usage, precious metals are now widely viewed as safe haven assets. In other words, it is considered a good investment in times of turbulence. Gold is also widely viewed as a hedge against inflation and depreciation currencies, as it is not dependent on a particular issuer or government.
The central bank is the largest holder of money. With the aim of supporting currency in turbulent times, central banks tend to buy gold to diversify reserves and improve the perceived strength of the economy and currency. High gold reserves provide a source of trust in the country's solvency. The central bank added 1,136 tonnes of gold to its bookings in 2022, worth around $70 billion, according to data from the World Gold Council. This is the best purchase every year since the record began. Central banks in emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold is inversely correlated with the US dollar and the US Treasury, both major reserve assets and safe haven assets. As the dollar depreciates, gold tends to rise, allowing investors and central banks to diversify their assets during turbulence. Gold is also inversely correlated with risk assets. While rallies in the stock market tend to weaken gold prices, selling in high-risk markets tends to favor valuable metals.
A wide range of factors allow prices to move. The fear of geopolitical instability or deep recession can quickly escalate gold prices due to their safe conditions. As an asset that does not yield, gold tends to rise at lower interest rates, but the cost of higher money usually weighs the yellow metal. Still, most movements depend on how the US dollar (USD) behaves, as the asset's price is in dollars (Xau/USD). Strong dollars tend to keep the price of gold down, while weaker dollars can push the price of gold up.
