Fed Rate Cut and U.S. Elections: Impacts on Gold Price

Impact of Fed Rate Cut on Gold’s Short-Term Outlook

The Federal Reserve is expected to announce a 25-basis-point rate cut on Thursday, marking the second reduction this year. Typically, rate cuts boost gold by reducing the opportunity cost of holding non-yielding assets. However, with the market intensely focused on the election’s impact, the Fed’s decision may exert only a limited short-term influence.

Trump Victory's Impact on Gold

A Trump victory is expected to weigh on gold due to expectations of a stronger dollar and rising bond yields. His policy stance, including tax cuts, tariffs, and reduced government spending, is likely to strengthen the dollar, diminishing gold’s appeal as a hedge against currency weakness. Following Trump’s 2016 election, both the dollar and equities surged, while gold prices pulled back. A similar market reaction is anticipated if Trump’s policies intensify, with traders bracing for further fiscal stimulus and potential inflationary effects.

Deficit-Spending Concerns

Deficit-spending concerns tied to Trump’s economic agenda and expectations for a less aggressive Fed are driving U.S. Treasury yields higher, further reducing gold’s appeal. Rising yields make interest-bearing assets more attractive, pulling investors away from non-yielding gold. Additionally, markets are seeing a noticeable ‘risk-on’ sentiment, adding further downward pressure on gold.

Technical Analysis: Gold's Range-Bound Movement

The technical analysis highlights cautious sentiment in the gold market, with trading currently within a defined range. Key support levels for gold are identified at $2,731, $2,724, and $2,713, with resistance levels at $2,745 and $2,758.

A Critical Week for Gold’s Direction

The U.S. presidential election and the Fed’s rate decision this week are likely to shape gold’s next move. With Trump’s victory potentially driving dollar strength and higher Treasury yields, gold may face downward pressure.