On Thursday, gold (XAU/USD) traded in the $2,570s after a dip to the $2,540s following the US Federal Reserve’s decision on interest rates. The precious metal reached a record high of $2,600 on Wednesday, shortly before the Fed announced a 50 basis point (0.50%) cut to the federal funds rate, reducing it to a range of 4.75%-5.25%.
Despite the initial spike, gold struggled to maintain its new high post-Fed meeting. Analysts attributed the lack of significant market volatility to the fact that the easing cycle had largely been anticipated by traders in advance.
Thomas Mathews, Head of Markets for Asia Pacific at Capital Economics, noted, “Markets barely reacted to the Fed’s 50 bps rate cut, and our expectation is that further cuts won’t have a substantial impact either.”
The Fed’s assessment of a robust US economy may have limited gold’s upside potential. Their GDP growth forecasts were only marginally adjusted downwards to 2.0% for 2024, with expectations to remain steady through 2027. Jim Reid, Global Head of Research at Deutsche Bank, commented, “The accompanying signal was a fundamentally strong US economy, with no indication of further 50 bps cuts likely.”
The Fed has identified weaknesses in the labor market as a key concern, revising its unemployment rate forecast to 4.4% for 2024-2025, with a projected decrease to 4.2% by the end of 2027. Moving forward, market focus will likely shift to the resilience of the labor market.
Despite these labor concerns, gold has not yet benefited as a safe haven asset. Janet Henry, Global Chief Economist at HSBC, remarked that jobless claims remain low, suggesting no immediate recession risk. She noted, “The increase in the unemployment rate is partly due to high immigration levels, rather than inherent economic weakness.”
Henry cautioned that labor market metrics are lagging indicators and could reveal unpleasant surprises. “If we see disappointing payroll numbers in November, we might revisit discussions about another 50 bps cut,” she said in an interview with Bloomberg News.
