Gold Soars to New All-Time High After the Fed Reaffirmed Rate Cut View – DailyFX

Gold (XAU/USD) Analysis

Fed gives green light to gold after reaffirming interest rate cut view

The Federal Reserve yesterday released its latest monetary policy statement along with a summary of its economic outlook. What is immediately clear from this announcement is that the Fed will stick to its original policy and cut interest rates three times this year, along with upward revisions to both inflation and growth.

Federal Reserve Economic Forecast Summary, March 2024

Source: Fed, March 2024 Economic Forecast Summary

Given the resilience of both the job market and economic growth, questions are being raised about how tight economic conditions in the United States are. Naturally, this has led to much speculation about the “neutral rate,” a federal funds rate that is neither accommodative nor restrictive, and was previously thought to be 2.5%. The March forecast includes an upward revision to the federal funds rate over the forecast period, and more notably a slight increase in long-term rates from 2.5% to 2.6%, which is likely theoretical. This seems to indicate a rise in the above neutral interest rate.

Ahead of the announcement, markets were pricing in the possibility that the Fed would ease expectations for rate cuts given strong economic data and stronger-than-expected inflation trends that have emerged in some form since December 2023.

Therefore, confirmation of the Fed’s December rate forecast led to dovish repricing of the dollar and short-term interest rates like the two-year Treasury yield, providing gold with ammunition to hit new all-time highs on Thursday.

gold 5 minute chart

Source: TradingView, Author richard snow

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Gold hits record high

Gold prices continued to rise in the wake of Wednesday’s FOMC meeting. The bullish continuation was highlighted in the previous gold update as long as the price remains solid above the previous high of 2146.80.

The new high of around 2,222 was the new gold bull market indicator, supported by increased central bank purchases, particularly from China recently. Precious metals could briefly pull back after a big move and could quickly find resistance if the dollar recovers and continues its recent uptrend. Support remains 2146.

Daily Gold (XAU/USD) chart

Source: TradingView, Author richard snow

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— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnow