Gold Plunge: 2.8% as Powell Hawks on Tariffs & Inflation
- Gold is experiencing its second day of declines as its safe-haven allure diminishes, even though Powell pointed out growing risks.
- Powell indicated the Fed can wait for more data before acting, suggesting tariffs might extend inflation, which is unsettling for Gold investors.
- The Fed’s hawkish stance is pushing the DXY up by 0.47% to 102.56, while a further inversion of the yield curve is amplifying worries about a recession.
Gold (XAU) prices continued their slide on Friday, marking the second day of losses and reaching a seven-day low of $3,023 per troy ounce – a drop of over 2.80%. This downturn comes as Federal Reserve Chair Jerome Powell adopted a more hawkish tone at a conference in Virginia.
XAU/USD falls to $3,023 as Fed Chair cautions about persistent tariff inflation, diminishing expectations of imminent rate cuts
Powell explained that current monetary policy allows the Fed to wait for more clarity before making any changes. He also noted, “Tariffs are likely to increase inflation in the coming quarters, and the effects could be more lasting than initially anticipated,” adding to investor unease.
He reassured that long-term inflation expectations remain “well anchored,” emphasizing the central bank’s priority is to prevent a “one-time increase in price levels” from turning into a persistent inflation problem.
Turning to the economy, Powell acknowledged the outlook is highly uncertain. Although he believes the economy is currently in a “good place,” he cautioned that downside risks have increased.
As Powell responded to questions, Gold prices continued their downward trend. Concurrently, the US Dollar gained strength, with the US Dollar Index (DXY) climbing 0.47% to 102.56.
Previously, money market traders had anticipated the Fed would ease policy by over 1% by 2025, reflecting a pessimistic economic outlook. This recessionary concern is further fueled by the deepening inversion of the US 10-year to 3-month yield curve, where the 3-month yield is now 25 basis points higher than the 10-year Treasury note yield – a classic signal of potential economic downturn.
Gold price reaction
Gold is under significant selling pressure at the time of writing, as sellers continue to drive prices down and are now targeting the $3,000 level. If this level breaks, the 50-day Simple Moving Average (SMA) at $2,937 will become the next key support to watch, followed by the $2,900 mark. Conversely, if XAU/USD manages to rebound, buyers would need to push prices back above $3,100 to regain control.
Gold FAQs
Gold boasts a long and significant history, serving humanity as a valuable store of wealth and a method of exchange. Beyond its beauty and use in jewelry, gold is now largely seen as a safe-haven asset, making it a popular choice for investment during uncertain periods. It’s also considered a shield against inflation and declining currency values because its worth isn’t tied to any single issuer or government.
Central banks are the biggest holders of gold globally. To bolster their currencies during times of economic stress, central banks often diversify their holdings by buying gold to project economic strength and currency stability. Substantial gold reserves can inspire confidence in a nation’s financial stability. According to the World Gold Council, central banks added a massive 1,136 tonnes of gold, valued at around $70 billion, to their reserves in 2022 alone. This marks the highest level of yearly purchases on record. Emerging economies, such as China, India, and Turkey, are particularly active in growing their gold reserves quickly.
Gold typically moves in the opposite direction to the US Dollar and US Treasuries. These are also considered major reserve and safe-haven assets. When the Dollar’s value falls, gold tends to increase in price, providing diversification for investors and central banks during turbulent times. Gold also has an inverse relationship with riskier assets like stocks. A booming stock market often leads to weaker gold prices, while market downturns tend to make gold more attractive.
A wide array of factors can influence gold prices. Geopolitical instability or fears of a severe recession can quickly drive gold prices upwards due to its safe-haven appeal. As an asset that doesn’t generate yield on its own, gold tends to benefit from lower interest rates, whereas higher interest rates can put downward pressure on its price. However, the most significant driver of gold price movements is usually the US Dollar (USD) because gold is priced in dollars (XAU/USD). A strong Dollar often keeps gold prices in check, while a weaker Dollar is likely to push gold prices higher.
