Gold prices are consolidating below $4,100 after the Federal Reserve's July meeting, where interest rates were held steady. Despite the Fed's decision to maintain rates at 3.50%-3.75%, the precious metal remains trapped in its month-old $4,000-$4,200 range. The US Dollar Index (DXY) dipped to around 100.67, near a two-week low, providing some support for gold.
Spot gold rose 1% to settle at $4,064.33 per ounce, while U.S. gold futures gained 0.7% to close at $4,065.75 per ounce. Gold briefly surpassed $4,100 after the Fed's announcement, prompting a decline in the US Dollar and short-term Treasury yields as traders unwound positions anticipating a rate hike. However, its gains were capped by a rise in longer-dated Treasury yields, with the 30-year yield climbing above 5.20% for the first time since 2007.
The Federal Reserve's decision saw a rare 9-3 vote, with Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan dissenting in favor of a 25-basis-point rate hike. This increases the likelihood of a September rate hike if inflation persists. Fed Chair Kevin Warsh described the policy debate as a "good family fight" and emphasized the Fed's readiness to further tighten policy if inflation remains high. Markets are pricing in a 63%-65% probability of a rate hike in September.
Geopolitical tensions are also influencing gold prices. Gold drew support from renewed instability in the Middle East following a US military interception of an Iranian missile attack and subsequent joint strikes with Saudi Arabia against Iran-backed groups in Iraq. However, gold has declined by nearly a quarter since the start of the war between the US and Iran five months ago, as high energy prices fuel inflation and increase the likelihood of prolonged high interest rates. Investors are now awaiting the US Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation gauge, which could impact rate expectations and gold prices.
Gold is currently trading around $4,080 during European trading hours on Thursday, recovering from an intraday low of $4,022. Analysts suggest that buyers need to breach the $4062 resistance level to target $4124 and potentially $4186. Conversely, a fall below $4008 could push gold down to $3954, with a potential slide to $3906.
