XAU/USD Defies Climbing T-Yields As Fed Signals Future Rate Cut Path

Following the Fed’s less dovish stance, gold records gains of more than $0.20. According to statistical data, the US economy grew 3.1% year over year in Q3. Gold’s attractiveness as a safe-haven asset in times of uncertainty is increased by the possibility of a US government shutdown.

The price of gold posted a 0.20% gain on Thursday, reversing some of its losses from Wednesday. The little increase on Thursday comes after the Federal Reserve (Fed) decided to take a more cautious approach and oppose three interest rate decreases in 2025. After hitting a day high of $2,626 the XAU/USD is currently trading at $2,588.

Gold prices saw modest gains, earlier on Thursday, recovering slightly from losses incurred the previous day. This followed the Federal Reserve’s less dovish stance, signaling a slower pace of interest rate cuts in 2025 than previously anticipated. The XAU/USD pair traded at $2,588 after reaching a daily high of $2,626.

The US economy showed positive signs, with initial jobless claims declining and GDP growth exceeding expectations in the third quarter. However, the Fed’s focus remains on curbing inflation. The Federal Open Market Committee (FOMC) approved a 25-basis-point interest rate cut, but not unanimously, with one member voting against the reduction. The Fed’s dot plot revealed a revised outlook, projecting two 25-basis-point rate cuts in 2025 and two more in 2026, reflecting a more cautious approach to monetary easing.

The US economic docket on Thursday witnessed a drop in Americans asking for unemployment benefits. In the meantime, US GDP grew 3.1% YoY in Q3 in its final release, according to the US Bureau of Economic Analysis.

Government Shutdown Looms, Boosting Gold’s Appeal

The looming threat of a US government shutdown has further enhanced gold’s appeal as a safe-haven asset. Political uncertainty and the potential for market disruptions typically drive investors towards gold. Despite this, the financial markets are focused on deciphering what will happen in 2025. Fed Chair Jerome Powell and the Federal Open Market Committee (FOMC) board reduced borrowing costs by 25 basis points. It wasn’t unanimous, however, as Beth Hammack of the Cleveland Fed voted to maintain the “status quo.”

In addition, Fed officials have turned their attention to inflation, as expressed in the dot plot. They forecast two 25 bps rate cuts in 2025 and two more for 2026.

In the meantime, the US government is only days away from being shut down with US President-elect Donald Trump pressuring Republicans in the House of Representatives to increase or eliminate the debt ceiling.

US Speaker Johnson and President-elect Trump’s team are encircling a new federal funding stop-gap plan that includes disaster aid, pushing off a debt limit fight for two years, and agreeing to a one-year farm bill extension.

Market Movers:

Rising US Real Yields: Increased US real yields, which climbed three basis points to 2.248%, exerted downward pressure on gold prices.
Treasury Yields and Dollar Strength: The 10-year US Treasury bond yield rose five basis points to 4.568%, while the US Dollar Index gained 0.16% to 108.39.
Economic Data: Initial jobless claims declined, and GDP growth surpassed expectations.
Fed’s Inflation Outlook: The Fed projects inflation to gradually decline, reaching 2.2% by 2026.
Technical Outlook: Gold prices face resistance at the 100-day Simple Moving Average (SMA) and the $2,600 level. A break above these levels could signal further upside potential. Conversely, a decline below $2,550 could indicate a bearish reversal.

Key Upcoming Events

The upcoming release of the core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge, and the University of Michigan Consumer Sentiment survey will be closely watched by market participants.