Gold edges higher ahead of US GDP release
- Gold is already up over 0.50% in the European trading session on Thursday.
- Markets read the Fed rate decision as hawkish ahead of the US GDP release.
- Gold's price could still reach a new all-time high and come as soon as a fresh catalyst appears.
Gold’s price (XAU/USD) trades back above $2,765 at the time of writing on Thursday and looks to be on its way again to a fresh all-time high. Bullion could not make that happen on Wednesday after a rather hawkish Federal Reserve (Fed) decision on interest rates. The main element that drew all the attention was Fed Chairman Jerome Powell’s reaction to questions about United States (US) President Donald Trump and his persistent call for substantially lower rates and borrowing costs.
A clash is coming, that looks to be certain, between the White House and the Federal Reserve. Fed Chairman Powell persistently refused to deliver any comments on questions from journalists around President Trump. The hawkish tilt from the Fed is a message to President Trump that the Fed remains independent and needs to see a clear and unambiguous weakening in the data to prompt further action.
Daily digest market movers: Ready for a fresh all-time high
- Markets perceived the Fed rate decision as rather hawkish as the Fed does not seem to be in a hurry to lower US interest rates, Bloomberg reports.
- A surge in Gold shipments to the US has led to a shortage of bullion in London, as traders amass a $82bn stockpile in New York due to fears of Trump administration tariffs, the Financial Times reports.
- The Gold Bar Integrity Database, developed by the London Bullion Market Association, has been launched. The database will trace the precious metal to prevent supply from criminal gangs or conflict zones ending up in bank vaults and stop counterfeit bars stamped with the logos of major refineries from entering the market, Bloomberg reports.
- The US Gross Domestic Product (GDP) data for the fourth quarter of 2024 will be released at 13:30 GMT.
Technical Analysis: Squeezing higher
Although the Fed’s interest rate decision on Wednesday was rather hawkish, that does not mean that Gold is barred from moving higher. In the US GDP report scheduled later this Thursday, the Personal Consumption Expenditures (PCE) component could trigger another leg up in Gold’s price, certainly if the number comes in softer than expected. That would mean a slowdown in the inflation metrics, which could quickly bring Gold up to the all-time high of $2,790.
The first line of support comes in at $2,721, a sort of double top in November and December broken on January 21. Just below that, $2,709 (October 23, 2024, low) is in focus as a second nearby support. In case both abovementioned levels snap, look for a dive back to $2,680 with a full-swing sell-off.
Conversely, that all-time high of $2,790 is very near now, less than 1% away from current levels. Once above that, a fresh all-time high will present itself. Meanwhile, some analysts and strategists have penciled in calls for $3,000, but $2,800 looks to be a good starting point as the next resistance on the upside.
XAU/USD: Daily Chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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