GOLD Analysis
Afternoon: Gold Holds Steady Amid Fed Rate Cut and Economic Policy Uncertainty
Highlights:
- Fed rate cut supports gold, but inflationary policies may spur further rate hikes.
- Economic data releases to provide insights on growth and inflation dynamics.
- Volatility expected as markets respond to fiscal and monetary policy signals.
Overview:
Gold prices hovered near $2,700 following the Federal Reserve’s anticipated decision to lower the benchmark interest rate by 25 basis points, adjusting it to the range of 4.5%-4.75%. In his post-meeting press conference, Fed Chair Jerome Powell emphasized that the short-term effects of the recent US presidential election would not influence the Fed's immediate monetary policy decisions. However, he acknowledged that the economy’s better-than-expected performance has lowered the Fed's perceived downside risks, though he refrained from commenting on any rate path for December, keeping markets on alert for further developments.
With the new administration’s policies promising fiscal expansion through tax cuts, deregulation, and potential tariff hikes, expectations for higher inflation have grown. These policies, if implemented, could accelerate economic growth but may also lead to larger deficits and upward pressure on inflation—a scenario often beneficial for safe-haven assets like gold. Yet, a potential rise in inflation could also prompt the Fed to tighten monetary policy in the long term, which would increase the opportunity cost of holding non-yielding assets such as gold, creating a complex environment for precious metals.
In the context of these dynamics, gold's role as a hedge against inflation and economic instability remains crucial. The policies under consideration by the new administration, particularly in areas such as trade tariffs and corporate tax cuts, are expected to bolster economic activity, but they could also create volatility across financial markets. This economic and policy backdrop is encouraging market participants to watch key economic indicators closely. Significant data releases this week, such as French and Italian industrial and trade reports and US consumer sentiment and inflation expectations, will offer further insights into economic conditions that may influence Fed policy and investor sentiment toward precious metals.
Given the potential for increased volatility, investors are advised to consider cautious entry points. Technical indicators show gold facing key support at $2,684 and resistance around $2,718, signaling a consolidation phase in this price range. In the Indian market, Gold MCX prices are expected to find support at ₹77,000 and resistance at ₹77,700.
Suggested Action: Traders may look to buy on a dip around $2,690-92 targeting $2,715/2725, with a protective stop-loss at $2,670 to manage downside risk.
Support and Resistance Levels:
