Gold price falls after 50bps Fed cut as Powell talks

• Gold prices fall after 50 basis point Fed rate cut; officials estimate that the fed funds rate will reach 4.4% by 2024.
• Fed expresses confidence in inflation target close to 2% despite economic uncertainties and balanced mandates.
• US Treasury yields rise to 3.67%; The US dollar index fell 0.54% to 100.49, touching a fresh annual low of 100.24.

Gold prices fluctuated between $2,565-$2,600 during the North American session after the Federal Reserve (Fed) cut rates by 50 bps. The Fed also projected that the federal funds rate would end 2024 at around 4.4%, according to the median estimate. At the time of writing, XAU/USD has erased its previous gains and is down over 0.20%.

Fed policymakers decided to lower borrowing costs as they became confident that inflation was moving “sustainably” toward the bank’s 2 percent target. However, they acknowledged that the dual mandate of price stability and maximum employment are roughly balanced, while noting that the economic outlook is uncertain.

It’s worth noting that there was one dissenting vote, as Gov. Michelle Bowman voted to cut rates by a quarter of a percentage point.

The Summary of Economic Projections (SEP) shows that officials expect interest rates to end at 4.4% in 2024 and 3.4% in 2025. Meanwhile, inflation, as measured by the Price Index for Personal Consumption Expenditures (PCE), it is expected to reach its target in 2026, although it is expected to end at 2.6% in 2024 and 2.2% in 2025.

Fed officials expect the economy to grow at a 2 percent pace in 2024 and the unemployment rate to rise to 4.4 percent by the end of the year.

Meanwhile, Fed Chairman Jerome Powell’s press conference is underway. He said risks to inflation have receded and reiterated that the economy is strong. Powell added that if inflation persists, “we can reduce policy more slowly” and added that according to the SEP, the Committee is in no rush to normalize policy.

Meanwhile, U.S. Treasury yields rose two and a half basis points to 3.67 percent, while the greenback fell. The U.S. dollar index ( DXY ), which tracks the greenback’s performance against six currencies, fell 0.54 percent to 100.49 after hitting a fresh annual low of 100.24.

Daily Market Reasons: Gold Price Drops During Volatile Session

• December 2024 federal funds rate futures suggest the Fed could cut rates by at least 108 basis points, meaning two 25bps rate cuts are expected to remain in 2024 over the next two meetings.
• U.S. building permits rose 4.9% month-on-month in August, from 1.406 million to 1.475 million.
• Housing starts expanded 9.6% and rose from 1.237 million to 1.356 million.

XAU/USD Technical Outlook: Gold Price Hits $2,600, Then Pulls Back Amid Powell Press Conference

The price of gold remains volatile during the North American session, but remains bullish after hitting a new all-time high of $2,600. However, buyers failed on the latter, which could pave the way for a pullback.

Momentum favors buyers, although short-term sellers are in control as the Relative Strength Index (RSI) aims lower.

If XAU/USD breaks below the September 13 low of $2,556, the next support would be $2,550. Once released, the next stop will be the August 20 high, which turned into support at $2,531, before targeting the September 6 low of $2,485.

On the other hand, if gold continues to rise, the first resistance would be $2,600. A breach of the latter will expose the $2,650 and $2,700 psychological levels.