Gold down to 2-week lows as the Fed delivers but not too much

Jerry Powell sent a clear message yesterday. Not too fast regarding rate cuts and then the dollar soared, sending gold down. Perspectives of a one and done rate cut are now higher. However, yes, more rate cuts are not out of the table.
Mauricio Carrillo
Gold down to 2-week lows as the Fed delivers but not too much
Gold down to 2-week lows as the Fed delivers but not too much

Gold and other metals such as Silver, Copper, and Palladium are trading down on Thursday as a post-Fed decision hangover. Investors saw their rate cut delivered but didn’t like the “mid-cycle adjustment to policy” reference from Fed’s Jerry Powell.

The dollar index jumped to highs since May 2017 as a reaction post-Fed. Now, market is turning its focus on the BoE rate decision and Friday’s NFP.

One and done in a ‘mid-cycle adjustment to policy’

America’s central bank delivered a rate cut for the first time in a decade as Fed Chairman Jerome Powell and colleagues are taking preventing measures to maintain the U.S. economy in good shape.

The reasons for this 25 basis point rate cut? The trade war and inflation. The Fed is concerned about how much it could hurt the nation’s economy, while prices aren’t rising too much for a healthy economy like the one in the United States should have.

Jerry Powell said that “there is nothing in the U.S. economy that presents a threat to the U.S. economy, down side risks are coming from abroad,” so all concerns come from abroad.

So, one rate cut and done suggested Fed Chairman, fueling the dollar index, hurting equities and metals such as gold.

However, Danske Bank analysts highlighted in a recent article that “Powell did not rule out more cuts.”

“In line with our expectation,” analysts said, “the Fed repeated in the statement that it will act as appropriate to sustain the expansion.” Danske expects two more cuts as in their view, “the Fed is still set to deliver two more cuts during the autumn (in September and December), as data would probably warrant it and the Fed does not want to disappoint markets too much.”

U.S. Dollar index jumps to highs since May 2017

The dollar was the biggest beneficiary from Wednesday’s Fed rate cut, but kind of hawkish move as the DXY broke 98.30 resistance level after the central bank decision, and it extended gains above 98.80 to test the 99.00 area on Thursday.

You know that, less interest rate cuts are providing a bullish base for the Greenback, which is seeing how the Fed delivered an unexpected but undoubtedly positive statement. Also, two policymakers dissented from a rate cut and didn’t want changes.

Currently, DXY is trading 0.34% positive on the day at 98.90, sending gold and other metals down.

Federal Reserve historic move send gold down

XAUUSD daily chart August 1

Gold is having problems to maintain prices above the 1,400 area after the Federal Reserve gave it a hard punch to digest on Wednesday, and the Dollar index is pushing it even lower Today.

Jerry Powell sent a clear message yesterday. Not too fast regarding rate cuts and then the dollar soared, sending gold down. Perspectives of a one and done rate cut are now higher. However, yes, more rate cuts are not out of the table.

In that framework, Friday’s employment report in America is now more important than before as it will pave, or not, the way to more rate cuts in Autumn.

Gold is trading down for the second day as the metal is adding declines to the already 1.30% drop performed on Wednesday.

Today, XAU/USD is trading 0.45% down at 1,405. Previously, the unit broke below the short-term support of 1,410, and it is now testing the 1,400 area. Below there, pay attention to the 1,380 level as a possible buying and bulls defensive zone.

Technical indicators are weak in the short term, but the chart pattern is still on play for more gains. Again, Friday’s non-farm payrolls number will set Fed, dollar, and gold’s fate.

Besides, the same is happening with silver, copper and in the smaller measure with palladium and platinum — all posting losses after Fed and Jerry Powell decision and position.

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