Fed's Hawkish Tone Sends Gold Prices Tumbling as Dollar Soars
1min read The Federal Reserve’s recent policy meeting has sent ripples through the market, leading to a notable decline in gold prices, now at their lowest in a month. After the Fed executed its third consecutive 25-basis-point interest rate cut, a cautious tone emerged regarding future rate changes, notably the pace of such adjustments in 2025, as highlighted by the latest dot plot projections.
The new quarterly projections reveal a reduced number of anticipated rate cuts for the coming year compared to earlier forecasts. The current expectation is that by the end of 2025, the benchmark interest rate will hover between 3.75% and 4.0%, indicating only two more cuts of 25 basis points each.
Following the announcement, U.S. Treasury yields and the dollar surged, causing gold prices to plummet by 1.6% at one point. Typically, lower rates are advantageous for gold as it offers no yield. However, the implied narrower range of policy easing forecasted by the Federal Open Market Committee has shifted market dynamics.
Bart Melek, the Global Head of Commodity Strategy at TD Securities, remarked, "Today’s hawkish rate cut could prompt speculators holding large long positions to lock in profits, thus pulling down gold prices." He further added that gold is vying with fixed-income products for investor attention, and without aggressive Fed alleviation, traders may consider reducing their positions.
As of 3:15 PM New York time, spot gold was down 1.5%, priced at $2,606.03 per ounce. Other precious metals, including silver, palladium, and platinum, also saw declines.
This monetary policy adjustment comes as the Fed increases its inflation forecast for 2025, significantly bolstering the U.S. dollar to its highest point since November 2022. This surge in the dollar, which has seen the Bloomberg Dollar Spot Index rise by 0.5%, reflects confident signals from the Fed about economic growth prospects. Consequently, the dollar's momentum may affect future travel budgets and the price of imported goods, notably for international travelers.
