[TMGM Financial Recap] Fed Holds Rates Steady, Gold Surges, Markets Turn to June PCE Data
Instead of falling, gold rallied strongly, briefly reaching US$4,116 during the session. The gains were driven by relief after the Fed refrained from raising rates, a weaker U.S. dollar, and safe-haven and inflation-hedging demand fueled by escalating tensions in the Middle East. Markets are now awaiting the June PCE inflation data for clues on the Fed's policy direction in September.
Spot gold staged a reversal that caught many investors by surprise. Ahead of the Federal Reserve's policy announcement, gold came under pressure and even briefly fell below the US$4,000 level. However, after the Fed confirmed it would keep the federal funds target range unchanged at 3.50% to 3.75%, spot gold quickly rebounded, climbing to its highest level since July 23.
Fed Chair Waller delivered a notably hawkish message during the post-meeting press conference, with three FOMC members even voting in favor of an immediate rate hike. Despite the overall hawkish tone, gold led a moderate rebound across financial assets. How long this rally can continue remains uncertain.
This meeting marked Waller's second interest rate decision since succeeding Jerome Powell as Federal Reserve Chair in May. The committee voted 9-3 to leave interest rates unchanged, while the presidents of the Cleveland, Dallas, and Minneapolis Federal Reserve Banks dissented, arguing that rates should be raised by 25 basis points at this meeting. These same three officials had also voted against the committee's decision at Powell's final meeting in late April. Such a large number of dissenting votes is rare in the Fed's history and underscores the increasingly hawkish stance among policymakers.
During the press conference, Waller stressed that the Federal Reserve would not waver in its fight against inflation. He noted that inflation has remained above the Fed's 2% target for more than five consecutive years, adding that the problem cannot be solved within nine weeks or by a single month of softer price data.
If the Fed's policy decision served as the catalyst for gold's rebound, then the sharp escalation in the Middle East provided continued momentum for the rally. On July 29, the United States and Saudi Arabia jointly launched airstrikes against Iran-backed armed groups inside Iraq. At the same time, Iran opened fire on a U.S. military base in Jordan and on vessels in the Strait of Hormuz, prompting President Trump to vow retaliatory action.
In the short term, changes in expectations for a September rate hike will be the key variable. Markets will focus on the release of the U.S. June Personal Consumption Expenditures (PCE) data on Thursday, the Federal Reserve's preferred inflation gauge, which could directly influence expectations for the September policy meeting.
Market Insight:
Gold rebounded sharply on the 4-hour chart, with both the MACD lines and histogram expanding around the zero line.
From a broader perspective, gold is being pulled by two opposing forces. On one hand, the Federal Reserve under Chair Waller has demonstrated a strong commitment to fighting inflation, suggesting that higher interest rates will continue to weigh on non-yielding assets such as gold. On the other hand, the rise in the 30-year U.S. Treasury yield above 5.2%reflects persistent long-term inflation concerns, while continued gold purchases by global central banks provide long-term structural support for the precious metal.
