Gold prices rebounded last night after Federal Reserve Chairman Jerome Powell highlighted ongoing inflation risks facing the U.S. economy.
The precious metal traded near US$3,380 per ounce, recovering from a 0.6% decline the previous day.
Federal Reserve Holds Rates Steady Amid Inflation Concerns
In its latest decision, the Federal Reserve opted to keep interest rates unchanged, maintaining the target range at 4.25% to 4.5%. This marks the first set of economic forecasts released by Fed policymakers since the introduction of sweeping tariffs by President Donald Trump.
Officials indicated that tariffs continue to pose upward pressure on inflation. Chairman Powell acknowledged that tariffs represent unavoidable cost increases for businesses and consumers alike.
“Everyone that I know is forecasting a meaningful increase in inflation in coming months from tariffs because someone has to pay for the tariffs,” Powell said. He explained that the cost is ultimately absorbed somewhere along the supply chain—from manufacturers and exporters to retailers and consumers.
Looking ahead, the Fed is now projecting two rate cuts within the year. However, Powell suggested the central bank is “well positioned to wait” before implementing any policy adjustments.
Gold’s Outlook Supported by Geopolitical and Economic Uncertainty
Gold prices have been on an upward trajectory in recent weeks, bolstered by escalating tensions in the Middle East. Yesterday, President Trump stated that Iran had forfeited the opportunity to negotiate its nuclear program. Reports from the Australian Financial Review indicated that the U.S. security team convened in the Situation Room, though the full extent of American involvement remains unclear. Iran has vowed retaliation should the U.S. join Israel in military action.
According to Bloomberg, “heightened geopolitical tensions and economic uncertainty, combined with strong demand from central banks and inflows into exchange-traded funds, have pushed gold nearly 30% higher this year.”
On the Australian Securities Exchange, gold-focused ETFs have delivered strong returns over the past 12 months. The BetaShares Gold Bullion Currency Hedged ETF (ASX: QAU) rose 43%, while the Vaneck Gold Bullion ETF (ASX: NUGG) gained 50% during the same period.
Risks to Gold’s Performance
A significant and sustained rise in consumer prices could deter the Fed from cutting rates, which may negatively impact gold prices. As gold yields no interest, investors might favor fixed-income assets like bonds if rates remain elevated.
Conversely, a prolonged conflict between Israel and Iran would likely increase demand for gold as a safe-haven asset.
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