Gold Stays Steady as Fed Signals Higher for Longer

The US Federal Reserve was in focus this week as it met from Tuesday (September 19) to Wednesday (September 20). The central bank was widely expected to leave interest rates unchanged, and that’s exactly what it did.

In its statement, the Fed reaffirms its goals of achieving maximum employment and bringing inflation down to 2 percent. It also emphasizes that it will continue to assess various factors as it determines its next steps.

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent” — US Federal Reserve

An update to the dot plot, which shows where each Fed official thinks the federal funds rate is headed, indicates that the median projection is 5.6 percent by the end of 2023. That’s in line with June’s dot plot, and signals that another 25 basis point increase is likely in the cards before the end of the year. Looking forward to 2024, two cuts of a quarter point each are anticipated — that’s less than the four decreases officials were forecasting three months ago.

Of course, while rate decisions are always hotly anticipated, Fed Chair Jerome Powell’s post-meeting comments are often more interesting for market participants. Notably, he was quick to say a soft economic landing isn’t a baseline scenario — responding to reporters, he said it’s plausible, but may be determined by factors outside the Fed’s control.

“Ultimately this may be decided by factors outside of our control at the end of the day, but I do think it’s possible. I also think this is why we are in a position to move carefully again” — Jerome Powell, US Federal Reserve

Powell also said the worst thing the Fed can do at this point is fail to restore price stability.

So what happened to gold? The yellow metal began the week just below US$1,910 per ounce, but rose as high as US$1,946 in the lead-up to the Fed meeting. Once the central bank’s decision came out, gold retreated, falling as low as US$1,914.60 on Thursday (September 21). By the time of this writing on Friday (September 22), it had moved up to US$1,925.14.

Many experts don’t think the gold price will be able to break out until the Fed starts cutting rates, and with a turnaround now looking like its further into the future, it’s possible the precious metal will continue to tread water in the near term. Time will tell — leave a comment below if there are any market watchers you’d like to hear from on gold.

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