Gold Price Stable Following Fed’s Latest Monetary Policy Insights

Gold Price Stable Following Fed’s Latest Monetary Policy Insights

Gold price has remained stable within the $2020-30 range after the US Federal Reserve (Fed) released January’s meeting minutes, indicating that the Fed is not in a rush to cut rates in the near future. Although this could be perceived as “hawkish,” US Treasury bond yields and the value of the Dollar showed minimal reaction to the release.

The Federal Open Market Committee (FOMC) minutes revealed that Fed officials were hesitant to reduce rates prematurely, highlighting the importance of gaining “greater confidence” in inflation moving sustainably towards 2% before considering a cut. Despite acknowledging a more balanced risk in achieving mandates, policymakers remained cautious of inflationary risks.

Following the release of FOMC meeting minutes, the market is anticipating potential rate adjustments in June. The US 10-year Treasury note yield increased by three and a half basis points, while the US Dollar Index (DXY) dropped marginally. Investors are pricing in the first Fed rate cut in June 2024, with expectations of 95 basis points of easing throughout 2024.

Recent US inflation reports prompted a change of language from Fed officials, adopting a “cautious” approach towards policy adjustments. Different Fed Presidents expressed varying opinions on the current state of the economy and the need for patience in policy decisions to ensure an agile response to evolving economic conditions.

Gold is currently trading within a narrow range, with a downward bias reflected in successive lower highs and lows. While resistance at the 50-day Simple Moving Average indicates a potential cap on the upside, a break above this level could lead to a test of the $2,050.00 mark. Conversely, a breach below the $2,000 figure may expose lower support levels.

Inflation measures the increase in the price of goods and services over time, with core inflation excluding volatile elements like food and fuel. Central banks target core inflation around 2% to maintain price stability. Higher inflation typically results in stronger currencies due to anticipated interest rate hikes, while lower inflation has the opposite effect.

Historically, gold served as a hedge against inflation, though its role has evolved in modern economic contexts. When inflation rises, central banks tend to raise interest rates to contain it, making holding gold less attractive due to increased opportunity costs. Conversely, lower inflation can be positive for gold as it lowers interest rates and enhances its appeal as an investment alternative.

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