Gold experiences volatility after the Fed meeting; signals of interest rate cuts remain distant

Current Gold Price Situation

The current Spot gold price is $2,047.21 while Futures are trading at $2,064.4 after yesterday’s FOMC meeting. The price has shown weakness again after Chairman Powell denied the possibility of a rate cut in March. The market is clearly volatile.

Federal Reserve Holds Rates with a Hawkish Message

At today’s Fed meeting, the U.S. monetary policy committee decided to keep interest rates at 5.25%-5.50%, maintaining the status quo for the fourth consecutive time. However, the committee’s statement sent a more aggressive signal, making market hopes for a rate cut in March just a theoretical possibility.

Powell clearly stated in the press conference that policymakers want to see more data to confirm that inflation is truly decreasing. He said, “We want to see better data,” indicating a wait-and-see stance by the central bank.

Changes in Language and Meaning

The monetary policy statement changed in several points. The committee removed phrases indicating a willingness to further tighten policy and replaced them with statements that inflation is moving toward the Fed’s 2% target.

The significance of this change is not to signal a shift toward easing but to inform the market that the next move will depend solely on data. The statement noted that “the committee does not expect to cut rates until there is greater confidence that inflation is moving sustainably toward 2%.”

Labor Market and Inflation Data

The labor market remains strong but shows signs of slowing. ADP reported that the private sector added 107,000 jobs in January, below expectations but still indicating ongoing employment growth.

More interestingly, the Employment Cost Index, which the Fed closely monitors, increased by only 0.9% in Q4, the smallest rise since Q2 2021. On the inflation front, the core PCE price index rose 2.9% in December year-over-year, the lowest since March 2021.

Analyst Perspectives

Adam Button from Forexlive.com noted that the statement has a slight bias against the US dollar, as the Fed rejected the possibility of a rate cut in March. Paul Ashworth from Capital Economics sees a slight tilt in that direction but believes a rate cut in March remains unlikely.

Economists who look superficially suggest that if the central bank truly wanted to change market expectations, Powell might have used the word “patient” more often. However, what actually happened seems to reaffirm the previous stance that everything depends on the data.

Possibility of Rate Cuts

According to CME Group calculations, the market assigns a 64% chance that the Fed will keep rates unchanged at the March 19-20 meeting. Committee members in December indicated the possibility of a total 0.75% rate reduction in 2024, which is less than what futures markets are pricing in.

Gold Faces Challenges but Still Has Fight

Although the monetary policy statement supports the momentum of the US dollar, gold can still fight against the pressure well. Prices fell nearly 1% after Powell’s comments but seem to be trying to recover.

Short-term Technical Analysis of Gold

In the short term, the daily gold chart shows some signs of consolidation. After a previous downtrend, prices have been rising for over three days. The EMA lines at 12 and 26 are approaching a crossover again.

Before returning to a short-term uptrend, prices may face resistance around $2,049-$2,056, the high points from last month. On the downside, the first support is at $2,041-$2,039, followed by $2,034-$2,030, before possibly testing the old trend line at $2,027.

Although there is a rebound, the possibility of a pullback remains, especially if the market’s view on the economy or inflation shifts again. This week will clearly show whether prices can hold above the EMA 12-26.