Why Did Gold Prices Drop After US Fed's Rate Decision?
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Synopsis
Gold prices have declined as the US Federal Reserve maintains interest rates and suggests a cautious approach to future cuts. Analysts discuss inflation expectations, geopolitical tensions, and market reactions to the Fed's decisions, presenting a complex landscape for investors. What will this mean for the future of gold and silver prices?
Key Takeaways
- Gold prices have declined following the Fed's decision.
- Geopolitical tensions are impacting market dynamics.
- Inflation expectations are rising.
- The Fed's cautious approach may lead to more gradual rate cuts.
- Market volatility remains influenced by external factors.
New Delhi, June 20 (NationPress) Gold prices have experienced a decline following the US Federal Reserve's decision to maintain interest rates, signaling a more gradual approach to future rate reductions, analysts reported on Friday.
US Fed Chair Jerome Powell stated that the central bank anticipates a rise in inflation over the upcoming months, influenced by tariffs and other factors, which reinforces a cautious monetary policy. While initial market reactions were optimistic, Powell tempered expectations by emphasizing that with low and stable unemployment, the Fed is prepared to await more data before proceeding with any adjustments.
Though he suggested that September could be a “live” meeting, market participants have been skeptical for some time. The Fed still projects a total of 50 basis points in rate cuts by 2025, but now forecasts only 25 basis points of easing in 2026 and 2027.
“Powell highlighted that these forecasts are highly dependent on data, particularly concerning inflation trends. Additionally, geopolitical events have heightened market uncertainty, as President Donald Trump proposed a meeting with Iran regarding the Iran-Israel conflict, while Russian President Vladimir Putin expressed willingness for significant peace talks with Ukraine,” remarked Manav Modi, Senior Analyst at Motilal Oswal Financial Services Ltd.
While the conflict between Israel and Iran remains unresolved, expectations for a de-escalation are exerting downward pressure on gold prices.
“Recently reported US weekly jobless claims were lower than anticipated, contributing to price fluctuations. Volatility may be reduced today as US markets are closed for a public holiday,” he added.
According to Rahul Kalantri, VP of Commodities at Mehta Equities Ltd, both gold and silver prices have dropped from recent peaks, nearing one-week lows, marking their first weekly decline in three weeks.
Silver prices fell below $35.70 per ounce after a sharp increase earlier in the week. This drop occurred as investors liquidated positions in bullion to cover losses elsewhere amid escalating geopolitical tensions between Israel and Iran. “The Bank of England also maintained its rates in their monetary policy meeting on Thursday, which limited gains for precious metals. However, the worsening situation of the Israel-Iran conflict and a weaker dollar index are encouraging safe-haven buying for precious metals. The depreciation of the rupee is also boosting gold and silver prices in domestic markets,” Kalantri elaborated.
Gold is currently supported at $3340-3315, while resistance levels are at $3380-3400. Silver has support at $35.75-35.50 and resistance at $36.35-36.55.
“In terms of Indian rupees, gold support stands at Rs 98,750-98,550 with resistance at Rs 99,550-99,740. Silver support is at Rs 106,380-105,500, while resistance is at Rs 1,08,350-1,09,000,” he noted.
Point of View
I believe it is crucial to present an unbiased perspective on the evolving situation surrounding gold prices. The interplay between monetary policy and geopolitical events creates a challenging environment for investors. Our analysis aims to keep our readers informed and prepared for potential market fluctuations.
NationPress
03/09/2025
Frequently Asked Questions
What factors are influencing gold prices?
Gold prices are influenced by interest rate decisions from the Federal Reserve, inflation expectations, and geopolitical tensions.
How does the US Fed's decision impact gold?
The Fed's decision to maintain interest rates signals a cautious approach, affecting investor sentiment and market dynamics.
What are the future projections for rate cuts?
The Fed anticipates rate cuts totaling 50 basis points by 2025, with only 25 basis points expected in 2026 and 2027.
What is the current support and resistance for gold?
Gold has support at $3340-3315 and resistance at $3380-3400.
How is the rupee affecting gold prices in India?
A weakening rupee is contributing to higher gold prices in domestic markets, providing additional support.
