Key Points:
Gold prices (Symbol: XAUUSD) held near $2,500 per ounce as markets turned to speculate on the Fed’s upcoming interest rate decision, after the U.S. labour market presented a complex picture for investors.
Picture: XAUUSD prices silenced as markets await the Fed’s interest rate decision, as observed on the VT Markets app.
U.S. economic data and next moves from the Fed
While fewer jobs were added, the unemployment rate stood firm at 4.2%, in line with expectations. Wage growth, however, picked up to 0.4%, higher than the forecasted 0.3%. The dual nature of this data — weaker overall job growth but stronger wages — has left markets uncertain about the scale of the Federal Reserve’s impending interest rate cut.
John Williams, the President of the Federal Reserve Bank of New York, signalled that it is now an appropriate time to reduce rates, emphasising the Fed’s progress on inflation control and the cooling job market.
Related content: Interest rate tug-of-war for central banks
The upcoming Fed meeting will be pivotal, with investors debating whether a 25 basis point cut or a more substantial 50 basis point cut will be announced.
Impact on gold prices
Gold typically benefits from a less restrictive monetary policy, as lower interest rates reduce the opportunity cost of holding non-yielding assets like bullion. The market has already priced in a total of 125 basis points in cuts over the remainder of the year. Should the Fed opt for more aggressive easing, it could further bolster gold’s appeal as a safe haven asset, pushing prices higher in the short term.
Opportunities and risks for short term traders
If the Fed announces a larger-than-expected rate cut of 50 basis points, it could drive gold prices higher, providing a favourable trading opportunity. Conversely, a more modest 25 basis point cut may lead to some consolidation in gold prices, though the overall trend remains bullish as markets expect more cuts throughout the year. Traders should also monitor key U.S. economic data releases this week, especially inflation figures, as these could offer further insight into the Fed’s decision-making process. Given the current uncertainty, volatility in the gold market may rise, presenting opportunities for gold trading.
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