Jerome Powell’s latest speech on monetary policy has rocked the price of gold as the bank aims to hold rates higher.
XAUUSD – Daily Chart
The price of gold has slumped through the uptrend support line at the $2,640 level. Support comes in lower at the $2,520 level initially.
Gold prices were hit this week after Fed Chair Jerome Powell shocked markets with a projection of two rate cuts in 2025, which is half the four cuts that markets had been expecting.
Inflation data and a stronger economy have Fed officials believing that the job is not done. Gold prices extended their losses on Thursday after the latest US data showed the economy grew faster than previously estimated, largely due to greater exports and strong consumer spending.
US GDP increased at an annualized pace of 3.1% in the third quarter, compared with the 2.8% seen in earlier estimates and 3% growth seen in the second quarter.
The latest release came after the Federal Reserve lowered interest rates by 25 basis points, but signaled fewer cuts next year. Meanwhile, the number of Americans who applied for unemployment benefits also fell more than expected last week.
Gold has been heavily supported by the expectation of interest rate cuts, which makes the precious metal more appealing. In times of higher rates, investors can park their money in the safety of US bonds for a yield, but as rates fall, there is more appetite for gold as an alternative.
Gold is now at risk of selling off further if investors see that the upside to rate cuts has expired at all-time highs.
Powell also signalled that Trump’s tariffs have altered the pace of the bank’s monetary policy.
“It’s kind of common sense thinking that when the path is uncertain, you go a little bit slower,” Powell said. “It’s not unlike driving on a foggy night or walking into a dark room full of furniture; you just slow down”.
