Wednesday saw a sharp reversal in gold prices, which initially surged past $2600 following the Fed’s unexpected 50-basis-point rate cut. However, after Fed Chair Jerome Powell’s remarks, gold tumbled nearly $50.
Meanwhile, concerns about the US economy and a rebound in the US dollar pressured oil prices, causing crude to halt its two-day winning streak.
Gold
On Wednesday, gold initially rallied, briefly surpassing the $2600 mark after the Fed’s surprise 50-basis-point rate cut, with prices reaching an intraday high of $2599.96/oz. However, following remarks by Fed Chair Jerome Powell, gold experienced a sharp decline, closing down 0.4% at $2559.11/oz.
Investors are now turning their attention to the Bank of England’s interest rate decision and meeting minutes.
The Fed’s unexpected rate cut marks the start of a new monetary easing cycle, with expectations for continued rate reductions. However, Powell noted that the Fed will not rush to lower rates, and will act at the pace it deems appropriate, whether fast or slow.
After Powell’s comments, the US dollar rebounded from a 13-month low, reducing gold’s appeal to investors holding other currencies. The 10-year US Treasury yield also hit a one-week high, further pressuring gold prices.
Independent metals trader Tai Wong commented: “Following Powell’s neutral stance, the dollar strengthened, leading to a quick pullback in gold prices. The Fed made it clear that future cuts will be data-dependent, and markets shouldn’t assume a new 50-basis-point standard.” He added, “Gold is still in a bull market, with dips likely attracting buying.”
Gold Technical Analysis:
Gold surged past $2600 after the Fed’s surprise rate cut but faced strong resistance and subsequently fell, ending the session with a bearish candle. Prices appear to have encountered resistance at the $2600 level, and a break below $2570 may signal an end to the recent bullish trend.
Today’s Focus:
Consider a strategy of shorting on rebounds, with opportunities to buy on dips.
- Upside Resistance: $2576–$2581
- Downside Support: $2540–$2535
Oil
Oil prices halted their two-day rally on Wednesday as the Fed’s aggressive rate cut raised concerns about the US economy. Following Powell’s speech, the rebound in the US dollar further weighed on oil prices. WTI crude settled 28 cents lower at $70.91/barrel, while Brent crude fell 5 cents to $73.65/barrel.
The Fed’s unexpected 50-basis-point cut fueled worries that the central bank anticipates a slowdown in the labor market, which could lead to weaker economic growth. While rate cuts generally boost economic activity and energy demand, a slowing labor market could dampen those effects.
However, data from the US Energy Information Administration (EIA) provided some support for oil prices. US crude inventories fell by 1.6 million barrels in the week ending September 13, much more than the expected 500,000-barrel drop, pushing inventories to their lowest levels in a year.
Standard Chartered Bank noted that further short-covering in oil could drive prices higher, citing three key factors: a longer timeline for Libya’s oil production to recover, OPEC’s compensatory production cuts minimizing the risk of oversupply, and a continued decline in US crude inventories.
Oil Technical Analysis:
Oil faced resistance at the $70.30 level, leading to a pullback. After two days of gains, prices are now entering a consolidation phase.
Today’s Focus:
Consider a strategy of shorting on rallies, with opportunities to buy on dips.
- Upside Resistance: $71.5–$72.0
- Downside Support: $69.2–$68.7
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