Gold price plummets on Fed hawkish cut, traders eye Powell presser

Gold falls over 1% as markets digest Fed rate cut.
Fed’s dot plot sees 50 basis points of rate cuts in 2025 and in 2026.
Investors remain attentive to US data, including GDP data and core PCE.

Gold prices dropped after the Federal Reserve decided to lower borrowing costs as expected and upward revised the fed funds rate to 3.87%, for 2025. At the time of writing, the XAU/USD trades volatile at around $2,610-$2,630.

The Federal Reserve cut rates by 25 basis points to the 4.25%-4.50% range, yet the decision was not unanimous, as Cleveland Fed President Beth Hammack opted to keep rates unchanged. When comparing the statement to the past meeting, there was little change, though traders were focused on the Summary of Economic Projections (SEP).

According to the SEP, the dot plot suggests that Fed officials see just two cuts for 2025 and two more for 2026. Officials estimate the Fed funds rate to end at 3.9% in 2025 and 3.4% in 2026.

Other projections suggest that the Fed’s favorite inflation gauge, the Core PCE, is expected to end at 2.8% in 2024, 2.5 % in 2025, and 2.2% in 2026. Regarding growth, the economy is foreseen to end at 2.5% in 2024, 2.1% in 2025, and 2% in 2026.

The Unemployment Rate is expected to end the current year at 4.4% and remain unchanged at 4.3% in 2025 and 2026.

After the data, Gold prices plunged sharply as traders assessed the cut as hawkish, with just 100 basis points of easing for the next two years.

This week, investors will also focus on Thursday's US GDP data and the Fed’s favorite inflation gauge, the core Personal Consumption Expenditures (PCE) Price Index, which could impact Bullion demand.

Daily digest market movers: Gold price tumbles after Fed's decision

Gold prices dropped as US real yields recovered, up by 7 basis points to 2.14%, a headwind for the precious metal.
The US 10-year Treasury bond yield rises 5 basis points at 4.45% after Fed’s decision.
The US Dollar Index, which tracks the performance of the American currency against six others, surges 0.70%% to 107.69.
Building Permits in November rose by 6.1% MoM from 1.419 million to 1.505 million.
Housing Starts for the same period fell -1.8% MoM from 1.312 million to 1.289 million.
Recently released US Retail Sales data and Flash PMIs hint that the economy remains solid amid interest rates set above 4%. Although inflation edged lower, core prices stalling at 3% and headline inflation printing higher readings for three straight months suggest that inflation risks are skewed to the upside.
The CME FedWatch Tool suggests that traders had priced in a 95% chance of a quarter-point rate cut on Wednesday.
For 2025, investors are betting that the Fed will lower rates by 100 basis points.

Technical outlook: Gold price retreats, sellers eye 100-day SMA

Gold price remains upwardly biased, though it has remained trading sideways during the last three days, with no definitive direction. The golden metal trades within the $2,602-$2,670 area, capped by the 100 and 50-day Simple Moving Averages (SMAs), respectively.

For a bullish resumption, the XAU/USD must clear $2,650, followed by the 50-day SMA at $2,670. If surpassed, the next stop would be $2,700. Conversely, if XAU/USD drops below the 100-day SMA, the next support would be $2,600. If the price slips, the next support would be the November 14 swing low of $2,536, before challenging the August 20 peak at $2,531.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

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.

How often does the Fed hold monetary policy meetings?

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.

What is Quantitative Easing (QE) and how does it impact USD?

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.

What is Quantitative Tightening (QT) and how does it impact 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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