Gold and the Fed's Hawkish Policy Signal
Prices moved steadily in Asian trading this morning, Thursday (December 11), despite the Federal Reserve (The Fed) sending a hawkish policy signal after cutting interest rates in its latest decision. The market surprise arose because common sense typically dictates that a hawkish signal—meaning tighter monetary policy in the future—tends to depress gold prices. However, this time the situation showed a different dynamic.
In its decision announced last night, the Fed cut its benchmark interest rate by 25 basis points to a range of 3.50%–3.75%. This cut was approved through a non-unanimous vote, with 9 members in favor and 3 against. This split reflects internal disagreements regarding the future direction of monetary policy, particularly regarding whether further interest rate cuts are necessary amidst still-uncontrolled inflation.
Despite the current cut, the Fed delivered medium-term projections that were hawkish in nature. The central bank predicted only one additional interest rate cut in 2026 and 2027, respectively, far from market expectations of a more aggressive easing cycle. This signal should have put pressure on non-yielding assets like gold, as higher future interest rates increase yields on alternatives like US Treasuries.
However, the market responded in the opposite direction. Gold prices actually rose following the announcement. Analysts believe that this gold price increase was driven by a combination of factors. The current interest rate cut continues to lower the opportunity cost of holding gold, thus directly supporting price movements. Furthermore, uncertainty arising from the split vote within the Fed has increased demand for safe-haven assets.
Market participants also highlighted that the Fed's hawkish projections are not guaranteed to materialize. The condition of the US economy will be a key determining factor. If employment or consumption data weaken in the coming months, the market will again price in a faster additional cut, regardless of the Fed's official guidance. This is why investors prefer to secure positions in precious metals early. On the other hand, movements in the US dollar and bond yields also supported gold's rise. The decline in bond yields following the interest rate cut decision made gold more attractive, while the weakening dollar following the decision made gold cheaper for international buyers.
Overall, gold's rise amid the Fed's hawkish signals indicates that the market is currently more focused on medium-term economic uncertainty and risks, rather than solely on the direction of interest rate policy. With the possibility of a shift in monetary policy if economic conditions worsen, precious metals remain a primary choice for investors seeking a hedge.
From a medium- to long-term perspective, the Fed's hawkish outlook has the potential to limit the room for gold price growth. If the US economy remains solid, inflation is controlled, and the Fed consistently holds off on cutting interest rates, bond yields could strengthen again and the dollar could recover—two factors that generally put pressure on gold. However, this pressure is highly dependent on the stability of the US economy. If fundamental data begins to weaken and encourages the market to expect a cut sooner than the current hawkish plan, gold could actually strengthen again and maintain its long-term bullish trend. Thus, the future direction of gold is largely determined by actual economic conditions, not solely by the Fed's policy guidance.
Source : Newsmaker.id
