Gold stays firm as safe-haven demand outweighs hawkish Fed signals

Gold prices rose on Thursday, reversing a major part of the overnight slide from a two-week high as the US Federal Reserve cautioned against rising inflation and labour market risks. 

Investors also waited for the outcome of the US-China trade negotiations this weekend. 

“The initial market reaction to the Federal Reserve’s (Fed) hawkish pause on Wednesday turns out to be short-lived amid the heightened economic uncertainty led by Trump’s rapidly shifting stance on trade policies,” Haresh Menghani, editor at FXStreet, said in a report. 

At the time of writing, the most-active gold contract on COMEX was at $3,398.60 per ounce, up 0.2% from the previous close.

The contract had risen above $3,400 per ounce, and touched an intra-day high of $3,421.94 an ounce.

Last week, the gold price had lost 2.4%, which was the sharpest weekly decline since the end of February.

“There was no specific trigger for the current price increase. It is possible that market participants saw the previously slightly lower price level as a buying opportunity,” Carsten Fritsch, commodity analyst at Commerzbank AG, said. 

In addition, uncertainty remains high, which favours demand for gold as a safe haven.

Fed maintains status quo

Citing widespread expectations, the Federal Reserve decided to maintain its benchmark interest rate within the 4.25%-4.5% band.

This decision concluded a two-day monetary policy meeting on Wednesday.

The US central bank’s accompanying statement indicated a further increase in uncertainty regarding the economic outlook.

During the post-meeting press conference, Fed Chair Jerome Powell addressed the significant uncertainty surrounding tariffs.

He stated that the appropriate course of action is to await further clarity on the matter.

“This suggests that the US central bank is not leaning toward cutting rates anytime soon, though it failed to impress the US Dollar bulls,” Menghani said. 

Gold prices derive support from safe-haven inflows

Ongoing geopolitical tensions, specifically in the Middle East and between Russia and Ukraine, are driving safe-haven inflows, which continue to support gold prices.

Early Thursday morning, the Ukrainian air force reported that Russian aircraft launched guided bombs on the Sumy region in northern Ukraine.

Vladimir Putin, the Russian President, declared a three-day ceasefire.

The bombing incident happened mere hours after the ceasefire began.

Meanwhile, Oman announced on Wednesday that it had mediated a truce between Washington and the Houthis, in which both sides agreed to refrain from targeting each other.

Despite calls for de-escalation, Houthi leaders have stated on social media that they do not plan to stop their attacks.

Additionally, Pakistan Prime Minister Shehbaz Sharif promised a response after Indian armed forces reportedly conducted missile strikes on nine terror targets in Pakistan and Pakistan-Occupied Kashmir early Wednesday. 

India’s strike was in retaliation against the tourist killings in Kashmir in April.  

Dhwani Mehta, analyst at FXStreet, said in a report:

Amidst heightened trade uncertainties and geopolitical risks, Gold price is likely to remain the go-to safety net for investors.

Technical outlook

Gold prices have recovered from the slump overnight and are pushing above the psychological barrier of $3,400 an ounce on Thursday. 

Prices on Wednesday fell as the US and China were reportedly preparing for trade talks this weekend.

“These are only talks about talks, setting the agenda for more in-depth discussions to come. But the fact that the two sides are communicating is definitely good news,” David Morrison, senior market analyst at Trade Nation, said. 

It seemed reasonable to expect some kind of pullback, or at least a period of consolidation, given the size of the gains over the first two sessions this week.

Gold prices are likely to continue rising, as daily chart oscillators are strongly positive, indicating upward momentum, according to FXStreet.

Gaining momentum above the $3,434-3,435 area, or the weekly high, would strengthen the positive outlook, enabling the commodity to challenge its record high and aim for the $3,500 level, FXStreet’s Menghani said.

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