Gold price slumps beneath $3,300 as Fed Minutes signal stagflation risks and patience
Gold price extended its losses during the North American session on Wednesday after hitting a daily high of $3,325 earlier in the day, as market participants digested the latest Federal Reserve (Fed) policy minutes. At the time of writing, XAU/USD trades below $3,300, resulting in a solid 0.27% decline.
On May 6-7, the Fed decided to keep rates unchanged, citing uncertainty about the impact of tariffs on the economy. Officials adopted a patience approach due to increased risks of high inflation and unemployment, fueled by the potential impact of tariffs.
Policymakers acknowledged some stagflation risks as they noted the “Committee might face difficult tradeoffs if inflation proves to be more persistent while the outlooks for growth and employment weaken.”
Therefore, the Fed has taken a cautious approach regarding monetary policy, waiting for the “net economic effects of the array of changes to government policies to become clearer.” It is worth noting that the Fed meeting took place before Trump reduced tariffs on China from 145% to 30%.
Bullion’s rally appears to have stalled during the week, as US Treasury bond yields recovered some of the previous week’s fall, underpinning the US Dollar. However, a surprise dovish tilt in the minutes, the less likely scenario, could drive XAU/USD prices higher.
On Tuesday, Fox Business News Gasparino, in a post on X, revealed that a framework between the US and India is close to being announced. It should be noted that the US has taken a more flexible approach to trade talks.
Despite this, the Gold upside remains due to increasing geopolitical tensions between Russia and Ukraine, as well as the Middle East conflict involving Israel and Hamas.
Goldman Sachs analysts recommended a higher-than-usual allocation to Gold in long-term portfolios, revealed Reuters. They cite elevated risks to US institutional credibility, pressure on the Fed, and sustained central bank demand.
Ahead in the week, the docket will feature the second estimate for Gross Domestic Product (GDP) in Q1 2025, and the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index.
Source : Fxstreet
