Powell's cautious signals trigger a rebound in gold, with prices soaring by $20 in response.

On Wednesday, after the Federal Reserve policy meeting, Chairman Powell’s series of statements sparked ripples in the financial markets. Spot gold closed Wednesday up by $20.20 to $4,228.47 per ounce, driven by the combined effect of multiple market forces.

Powell’s Attitude Shift Becomes a Trigger

The Fed cut the federal funds rate by 25 basis points as scheduled to 3.50%-3.75%. Although the decision was in line with expectations, Powell exhibited an unusually cautious tone at the subsequent press conference. He emphasized that the labor market faces downside pressures and significantly downplayed inflation risks. This subtle change in wording was immediately interpreted by the market as a signal of a policy stance adjustment.

Powell pointed out that, after adjustments for employment data, job growth since April may have turned negative. He further stated that the labor market is cooling continuously, albeit possibly more mildly than expected. Regarding the next policy move, Powell adopted a more reserved stance, refusing to make a clear commitment on whether to cut rates further in the near term.

Dollar and Bond Yields Both Weakening

Powell’s dovish stance directly shook the dollar market. The dollar index, tracking the performance of the dollar against six major currencies, closed at 98.65 on Wednesday, down 0.6%, marking the largest single-day decline since September 16. A weaker dollar generally enhances the appeal of gold, which is priced in dollars.

Meanwhile, US Treasury yields also declined significantly. The 10-year Treasury yield fell by 3.5 basis points to 4.155%, and real yields, which have an inverse relationship with gold, also dropped to 1.895%. In an environment where interest rates are expected to ease, the relative appeal of non-yielding gold increases.

Divergence Within the Policy Committee

Although the FOMC’s vote supported rate cuts, three members voted against, reflecting some disagreement within the decision-making body about the economic outlook. The monetary policy statement emphasized that the economy faces downside risks to employment and noted that inflation pressures remain, describing the outlook as “uncertainty about the economic outlook remaining elevated.”

According to the dot plot forecast, most members suggest that the federal funds rate could be around 3.4% in 2025, implying that policymakers may implement another 25 basis point rate cut next year. The long-term neutral rate is set at 3% by Fed officials.

Technical Outlook for Gold Reveals Trading Opportunities

From a technical perspective, the current gold chart indicates that the upward trend may continue. The Relative Strength Index (RSI) suggests that bullish momentum still dominates. Analysts point out that Powell’s policy signals lay a foundation for further gold gains.

Technical analysis suggests that gold may first test the $4300/oz level. If this resistance is broken, the price could challenge the all-time high of $4381/oz. Achieving this target will require further consolidation of dovish policy expectations in the market.

On the downside, if the price falls below the key support at $4200/oz, the next significant support level is near the 20-day simple moving average at around $4153/oz. Deeper support levels are at the 50-day moving average at $4090/oz and the round number at $4000/oz.

Market Participants’ Real-Time Reactions

Independent metal traders noted that gold traders reacted positively to Wednesday’s results. After a round of profit-taking, gold rebounded to the day’s high, indicating a return of bullish sentiment. Many market participants had expected the Fed to signal a more hawkish stance, but Powell’s actual tone exceeded those expectations, leading to a broad strengthening of financial assets.

A strategist at US Bank indicated that, compared to previous market expectations, Powell’s assessment of the labor market is noticeably more pessimistic, which drove the dollar sharply lower. Manulife Investment Management’s portfolio manager also pointed out that the market’s general expectations significantly diverged from the signals ultimately conveyed by Powell, amplifying the market’s reaction.

Will Gold Reach New Highs? Remains Uncertain

Although gold has received both policy and technical support in the short term, independent analysts caution that whether gold can again hit a record high remains uncertain. It depends on whether upcoming economic data continue to support market expectations for further rate cuts and whether the dollar can stay weak. Traders participating in gold markets should closely monitor upcoming economic indicators such as US employment data and CPI figures.