Gold prices pulled back from a record high after Federal Reserve Chairman Jerome Powell signaled policymakers aren’t in a rush to aggressively lower interest rates following Wednesday’s half percentage point cut by the US central bank.
 

Gold rose by as much as 1.2%

Gold, which typically benefits from lower interest rates, initially rose by as much as 1.2% to $2,600.16 an ounce before retreating after Powell stated that no one should interpret this as a “new pace” during his press conference. Projections released after the Fed’s two-day meeting revealed that a slight majority—10 out of 19 officials—supported lowering rates by at least an additional half-point in the central bank's remaining meetings this year.

The beginning of the Fed's rate-cutting cycle suggests that interest rates will decline and the dollar is likely to weaken, according to Will Rhind, founder of GraniteShares Advisors, which manages a gold-backed exchange-traded fund.
 

“The Fed moved aggressively this meeting in response to their dual mandate, but does not indicate the Fed is expecting a recession,” said Jay Hatfield, chief executive officer of Infrastructure Capital Advisors. “We believe gold is likely to grind higher as global interest rates continue to drop. So we would be inclined to add” long positions in gold.
 

Meanwhile, gold has hit repeated records over the past weeks as investors weighed prospects that the Fed would deploy a rate reduction bigger than a quarter percentage point, which would present a significant boost to the non-yielding bullion.
 

Impact of Fed’s decision on gold prices

Gold, Treasuries, and the S&P 500 Index have generally risen when the Fed begins to lower rates, according to a Bloomberg News analysis of the last six easing cycles since 1989.

The Fed's announcement on Wednesday concludes a period of uncertainty in the gold market, with some analysts noting a return to more traditional trading patterns, particularly gold's historical tendency to move inversely to real yields.

This relationship had weakened in recent years, as gold prices remained historically high even amid rising rates, supported by significant central bank purchases and increasing demand from investors and consumers in Asia. In 2023, gold prices have surged dramatically, climbing over 25% to reach new records.

Recently, there have also been indications of renewed interest from Western investors, fueled by expectations that the Fed would pivot. Holdings in gold-backed exchange-traded funds have increased in 10 of the past 12 weeks, while long positions in gold futures are approaching a four-year high.