Gold edges lower as markets eye Fed’s 2025 monetary policy path

Gold prices dipped on Wednesday as investors awaited the Federal Reserve’s monetary policy decision. The market’s focus is on the central bank’s 2025 economic projections and the tone of Chair Jerome Powell’s subsequent press conference. The precious metal is 0..35% down, trading at $ 2636.28 at the time of writing.

A hawkish stance from the Fed, characterized by a more aggressive monetary policy, could dampen gold’s appeal. Higher interest rates typically strengthen the dollar, making gold, which is priced in dollars, more expensive for overseas buyers. Additionally, rising bond yields reduce the opportunity cost of holding non-yielding gold.

Conversely, a more dovish tone, suggesting potential future rate cuts or a pause in tightening, could bolster gold prices. A lower interest rate environment traditionally favors gold as it reduces the opportunity cost of holding the precious metal. While markets are currently pricing in a 25 basis point rate cut at this meeting, expectations for further reductions in the near future are relatively low. This could limit gold’s upside potential in the short term.

However, longer-term factors continue to support gold’s bullish outlook. Central banks around the world are increasing their gold reserves as a diversification strategy. Moreover, geopolitical tensions and economic uncertainty can drive safe-haven demand for gold. While short-term volatility may persist, the underlying fundamentals for gold remain strong. As the global economic landscape evolves and central banks continue to navigate a complex monetary policy environment, gold is likely to maintain its appeal as a store of value and a hedge against inflation.