Gold prices saw a dip after the US Federal Reserve’s decision to keep interest rates unchanged in its May 2025 meeting. The central bank, as expected, left its benchmark rate within the 4.25% to 4.5% range.
Fed Chair Jerome Powell mentioned that the US economy remains strong, and the Fed’s dual mandate of maximum employment and stable pricing is still in balance. However, he also acknowledged rising risks and a sharp decline in consumer and expert sentiment due to the ongoing tariff situation. The ongoing trade tensions, particularly with China, Canada, Mexico, and the European Union, have weighed on the economy, with tariffs already significantly reducing imports into the US.
Key Highlights
The US tariffs on key trading partners, including a 145% tariff on China, have resulted in reduced imports. Notably, the Port of Los Angeles has seen a 44% drop in activity compared to the previous year, while the Port of Seattle has experienced a 40% decline. This is leading to concerns about empty store shelves and job losses.
In Q1, there was a spike in imports as businesses rushed to move goods ahead of the tariffs, which affected GDP, causing it to contract by 0.3% during the first quarter.
Powell emphasized uncertainty surrounding trade policies and acknowledged downside risks that have yet to materialize. However, the Fed remained patient, believing there was no urgent need to adjust rates given that inflation is low and the labor market remains solid.
Gold and Market Reaction
Following the Fed’s cautious stance, gold prices dipped from session highs around US$3,400 per ounce to US$3,371.86. Meanwhile, silver prices also dropped, trading at US$32.28 per ounce. The stock market reacted modestly, with the S&P 500 seeing a slight decline of 0.17%, the Nasdaq-100 falling 0.2%, and the Dow Jones Industrial Average rising 0.32%.
Looking Ahead
The Fed’s next meeting is scheduled for June 17-18, 2025, and it will be closely watched for further indications on how it plans to navigate the ongoing uncertainty stemming from the tariff dispute and its economic impact.
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