Gold surges after Fed holds as hawkish dissent fuels volatility
- Fed holds rates, but three hawkish dissents unsettle bullion traders.
- XAU/USD swings between $4,041 and $4,100 after split decision.
- Fed statement stresses solid growth, jobs resilience and price stability.
Gold price rises during the North American session after the Federal Reserve decided to hold rates unchanged, with a 9-3 vote split, as three members of the FOMC opted to increase the Fed funds rate by 25 basis points. The XAU/USD trades volatily at the time of writing within the $4,041-$4,100 range.
XAU/USD trades choppily after the Fed held rates, with three officials backing a 25-bps hike
The Fed noted that economic activity is expanding at a solid pace despite elevated uncertainty stemming from the Middle East conflict. The statement revealed that “Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little.”
Furthermore, the policy statement added that the Fed will deliver price stability.
Voting against the monetary policy decision were Cleveland Fed Beth Hammack, Minneapolis Fed Neel Kashkari, and Dallas Fed Lorie Logan, who preferred a 25-basis-point rate hike.
Up next, investors await the press conference of the Fed Chair Kevin Warsh.
XAU/USD Hourly chart
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.
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