Gold prices surge, US dollar slides following FOMC decision

Gold prices surged following the Federal Reserve’s decision to hold interest rates at 5.25-5.50% and Chair Powell’s cautious comments. The US economy, despite facing inflationary pressures and a tightening labor market, maintains robust domestic demand, according to Powell’s observations. However, inflation remains high, leading to the Fed’s cautious stance on its future trajectory. Investors are giving up their hopes on three rate cuts this year and are instead delaying the start of the easing cycle to Q4.

Fed emphasized that progress on inflation stagnated and that they need more confidence to start cutting. During a press conference, Fed Chairman Jerome Powell acknowledged significant progress toward the Fed’s dual goals, but that inflation is still above target, with further progress uncertain.

Powell presented different case scenarios where he basically stated that if data continues coming strong, they will hold their monetary policy for longer. If data gives the bank more confidence, they will start cutting. However, the possibility of a rate cut is currently low, with the likelihood of a rate cut by the Fed in June and July being low and those odd for the September meeting dipped below 55%.

Gold prices leaped over 0.40% after the Federal Reserve announced that it would hold interest rates steady and slow down its balance sheet reduction. Fed Chair Jerome Powell failed to provide forward guidance regarding lowering interest rates during the rest of the year.

The XAU/USD has touched the $2,325, up by more than 0.40% as Fed Chair Jerome Powell took the stance. He said it wouldn’t be appropriate to cut rates until they have confidence that inflation is trending toward its 2% goal, adding that this year’s inflation data “has not given us that greater confidence.” At the time of writing gold futures are trading at $2311.00 per ounce.


Earlier, the Federal Reserve opted to maintain the federal funds rate at 5.25%-5.50%, noting that the risks associated with achieving the Fed’s dual mandate, which focuses on employment and inflation, have become more balanced over the past year. Fed policymakers announced a significant change to their balance sheet policies, starting in June, which will reduce their monthly reduction of holdings in US Treasury securities from $60 billion to $25 billion, signaling a shift in their approach to balance sheet normalization.

Gold price stays firm amid a steady US dollar and falling US yields. The US 10-year Treasury bond yield has fallen three basis points (bps) to 4.653%, boosting gold. Meanwhile, the US economy continues to print mixed readings, with the Gross Domestic Product (GDP) missing the mark last week.

Inflationary data linked to the first quarter of 2024 sounded the alarm that the price trend is shifting to the upside, which might prevent the Fed from easing policy sooner than expected.