Gold falls to near $4,250 after Fed delivers rate hike
- Gold price tumbles to near $4,265 in Thursday’s early Asian session.
- Fed raised its benchmark interest rate by 25 bps to the target range of 3.75% to 4.00% on Wednesday.
- Trump demanded the Fed lower interest rates to 1% “or less,” after the Fed rate decision.
Gold price (XAU/USD) attracts some sellers to around $4,265 during the early Asian session on Thursday. The precious metal extends its downside after the US Federal Reserve (Fed) raises interest rates and signals another rate increase is likely this year.
The Federal Open Market Committee (FOMC) voted unanimously to lift the benchmark federal funds rate to a range of 3.75% to 4.0% on Wednesday. It was the US central bank’s first rate hike since July 2023.
During the press conference, Fed Chair Kevin Warsh restated his concerns over inflation, saying too many categories of products and services were showing annualized price gains above 3% on a 6- and 12-month basis. Warsh flagged further increases in borrowing costs in the coming months, sending the US Dollar (USD) higher and weighing on non-yielding bullion.
“That’s hawkish. If the chair thinks policy is accommodative, then you’ve got more work to do,” said Michael Gapen, chief US economist for Morgan Stanley.
Higher interest rates typically weigh on gold because the precious metal does not pay interest, making yield-bearing assets relatively more attractive.
US President Donald Trump on Wednesday demanded the US central bank slash interest rates to 1% “or less,” hours after the Fed announced its first rate hike since 2023. Ongoing friction between the White House and independent Fed concerns could boost safe-haven flows and help limit the yellow metal’s losses.
Gold support capped as yields and Dollar strength counter safe-haven bid
Analysts at Commerzbank observe that the recent pullback in Gold, which slipped to around USD4,292, reflects a tug-of-war between geopolitical safe-haven demand and macro headwinds. They note that “higher Treasury yields and the stronger USD continue to offset some of the safe-haven support from geopolitical risks,” limiting the metal’s ability to capitalise on risk-off sentiment. The bank also links the robust precious-metal price dynamics to India’s inflation backdrop, highlighting particularly strong Gold and Silver jewellery inflation, while underlying core inflation excluding precious metals remains much softer.
Technical Analysis: Gold
In the daily chart, XAU/USD stays capped below the 100-day Moving Average (MA) and the Bollinger Bands’ 20-period simple moving average (SMA), keeping the near-term bias tilted to the downside despite only moderate momentum, with the Relative Strength Index (14) hovering around 42 and pointing to lingering bearish pressure rather than capitulation.
On the topside, initial resistance is located at the 100-day MA around $4,325, with the Bollinger mid-line reinforcing a higher barrier near $4,440 and the upper band further up around $4,685, levels that would need to be reclaimed to ease the current bearish tone. On the downside, the lower Bollinger band offers the next notable cushion around $4,200, where buyers may attempt to slow the decline if selling pressure extends.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.