The gold market is struggling as it hovers near an important short-term support level around $2,750 an ounce, after the Fed kept interest rates unchanged and did not provide much information about its monetary policy easing cycle.
As widely expected, the Fed kept the federal funds rate unchanged in a range of 4.25% to 4.50%.
The central bank's monetary policy statement was largely unchanged from its December meeting, when the Fed signaled a shift toward an easing cycle through 2025, with just two rate cuts expected.
Following the Fed decision, gold prices fell below key support levels and are now trading near session lows.
One notable change in the monetary policy statement this time around is that the Fed appears to be more concerned about inflation. “Inflation remains elevated,” the January statement said, marking a change from the December statement, when the central bank acknowledged that consumer price pressures were moving closer to its 2% target.
Michael Brown, senior analyst at Pepperstone, said the statement showed the Fed, under Chairman Jerome Powell, was trying to buy time to maintain high flexibility as policymakers continue to assess the progress of reducing inflation and the resilience of the US labor market.
However, Brown also noted that the Fed is facing higher levels of economic uncertainty in 2025, which will increase market volatility.
“As a result, the Fed’s ‘safety cushion’ that has provided stability to risk assets over the past 18 months or so is now gone. The Fed’s support is being reduced each month as economic data remains solid.
This, coupled with greater uncertainty about monetary policy, could make stocks more volatile this year. However, with solid economic growth and continued expansion in corporate profits, the overall trend remains upward,” he said.
While the market still expects the Fed to cut interest rates twice this year, some analysts say January's cautious stance could make that expectation difficult to realize.
Paul Ashworth, chief North American economist at Capital Economics, said economic data over the next few months will play a key role in determining the Fed's easing path.
“We still expect the Fed to cut rates in March. However, that would require a significant downward revision to January’s weak jobs and inflation numbers,” he said.
“If the Fed does not continue to cut in the next few months, the window for further easing may close. While the market is still pricing in cuts in the second half of the year, we believe a series of tariffs could prevent that, as inflation could return to 3%,” he added.
Overall, gold futures for February delivery remain bullish and hold the advantage in the short term. Currently, buyers are aiming to push prices above the strongest resistance level at $2,826.30 an ounce. On the contrary, sellers want to push prices below the important support level at $2,700 an ounce.
Major overseas markets saw Nymex crude oil futures fall, trading around $73 a barrel. The yield on the 10-year US Treasury note is currently at 4.585% - up slightly after the FOMC statement.
