Gold holds steady near $4,600 as Fed rate decision looms
- Gold price trades flat around $4,600 in Wednesday’s early Asian session.
- Traders await a key Fed policy decision later on Wednesday.
- Inflation worries and a halt to the Fed rate cut cycle could undermine the Gold price.
Gold price (XAU/USD) holds steady near $4,600 during the early Asian session on Wednesday. The precious metal steadies as traders await a key Federal Reserve (Fed) interest rate decision later on Wednesday.
The US central bank is anticipated to maintain the benchmark federal funds rate in the 3.50% to 3.75% range, marking the third consecutive meeting without a change. This meeting may be the final one for Jerome Powell, whose successor, while Kevin Warsh, is nearing confirmation.
Traders will take more cues from the press conference on how policymakers are interpreting the impact of higher energy costs and whether this alters their longer-term outlook on interest rates. Any hawkish remarks from the Federal Reserve (Fed) policymakers could lift the US Dollar (USD) and weigh on the USD-denominated commodity price.
Additionally, ongoing US–Iran tensions and the closure of the Strait of Hormuz could have fueled inflation fears and raised the bar for cutting rates. Gold is often used amid geopolitical uncertainty, but does not yield interest, making it less attractive when interest rates are high.
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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