Gold Price Holds Steady as FOMC Hikes Rates, While ECB and China Provide Mixed Signals

Gold price (XAU/USD) displayed some fluctuations after reaching $1,982 during the early European session, eventually settling near $1,975 with a 0.19% increase for the day.

Arslan Butt•Thursday, July 27, 2023•2 min read

GOLD price (XAU/USD) displayed some fluctuations after reaching $1,982 during the early European session, eventually settling near $1,975 with a 0.19% increase for the day. Precious metals continued their positive streak for the third consecutive day on Thursday.

As anticipated, the Federal Open Market Committee (FOMC) raised its interest rate by 25 basis points (bps), bringing the target range to 5.25%–5.5%, marking the highest level in over 22 years since the housing market collapse in 2007. Fed Chairman Jerome Powell acknowledged that inflation has somewhat moderated since last year but still has a long way to go to meet the 2% target. Powell also hinted that the Fed might consider pausing rate hikes if necessary, which could limit the downside in precious metals. Gold tends to be sensitive to rising interest rates, as they increase the opportunity cost of holding non-yielding bullion.

On the other hand, the European Central Bank (ECB) is expected to raise interest rates by 25 basis points (bps) in its upcoming meeting. Speculations suggest that the ECB might implement rate increases in both July and September to address inflation concerns, but concerns over economic slowdown in the Eurozone might lead to a pause in rate hikes. Investors will closely monitor ECB President Christine Lagarde’s statements regarding future monetary policy, as a hawkish stance from the ECB could pose a headwind for the gold price.

In contrast, China, the largest gold consumer globally, announced additional support for the real estate sector and measures to boost domestic consumption amid a sluggish post-COVID recovery. This move is expected to further bolster the upside potential in the gold price. Gold traders will closely follow the developments of China’s additional stimulus plan.

Moving forward, market participants will focus on the first readings of the US Gross Domestic Product (GDP) for the second quarter (Q2), the core Personal Consumption Expenditure (PCE) Price Index MoM, Durable Goods Orders, and Initial Jobless Claims data. These releases might influence the dynamics of the USD price and impact short-term trading opportunities in the gold market.

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ABOUT THE AUTHOR See More

Arslan Butt

Index & Commodity Analyst

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.