Gold Prices Plummet as Federal Reserve Signals Higher Threshold for Rate Cuts
The Federal Reserve’s decision to cut interest rates on Wednesday led to a sharp drop in gold prices, with spot gold tumbling over 2% to a one-month low. Spot gold closed the session down $60.36, or 2.28%, at $2,585.54 per ounce—the lowest level since November 18. The U.S. dollar index surged over 1% to a two-year high, while yields on the benchmark 10-year U.S. Treasury note rose to a four-week peak, making gold more expensive for holders of other currencies.
The U.S. Federal Open Market Committee (FOMC) voted 11-1 to lower the federal funds rate to a range of 4.25% to 4.5%. Cleveland Fed Chair Beth Hammack dissented, favoring no change to rates. Despite this being the third consecutive rate cut, the Fed’s updated projections for 2025 indicated a slower pace of easing, signaling caution in further reducing borrowing costs. The Fed’s dot plot now forecasts the benchmark rate at 3.75% to 4% by the end of 2025, reflecting two 25-basis-point cuts instead of the previously anticipated three.
Federal Reserve Chair Jerome Powell emphasized a higher bar for additional rate cuts, citing inflation risks and economic uncertainty. Powell noted that while inflation is trending toward the Fed’s 2% target, it remains elevated and may take up to two years to stabilize fully. He underscored the Fed’s intent to proceed cautiously, aiming to balance inflation concerns without overheating the economy.
Following the rate decision and Powell’s remarks, U.S. real yields rose by 7 basis points to 2.14%, while the 10-year Treasury yield climbed 5 basis points to 4.45%. These movements weighed heavily on gold, as investors sought higher returns from fixed-income assets. Analysts noted that gold prices, which fell below the $2,600 per ounce support level and the 100-day Simple Moving Average (SMA) of $2,602 per ounce, face increased downside risk.
Market analysts highlighted that the decline in gold prices aligns with a hawkish rate cut stance by the Fed. Bart Melek of TD Securities attributed the sell-off to profit-taking by speculators, while Valeria Bednarik of FXStreet observed that technical indicators for gold are trending downward, with the next support level at $2,536 per ounce.
The Fed’s cautious approach to rate adjustments suggests a prolonged period of elevated interest rates, further dampening gold’s appeal relative to fixed-income investments. Traders and investors will closely monitor upcoming economic data, including the core personal consumption expenditure (PCE) figures, for signals on inflation and monetary policy direction.
