3,700

Once again, our headline is a figure, suggesting another unusual recent event. In the run-up to yesterday’s Fed interest rate decision, the financial markets were in a state of joyful anticipation. Following reports on an increase in US weekly initial jobless claims to their highest level since October 2021 last Thursday, the gold rally and downward pressure on the US dollar accelerated – although it should be noted that, according to analysts, the reports may have been distorted by erroneous data from Texas, making a follow-up correction possible.

Fed cuts US key interest rate for the first time this year

After the ECB once again expressed satisfaction with the current interest rate level and inflation rate development last Thursday, analysts are increasingly voicing their opinion that the cycle of interest rate cuts in the eurozone is over, whereas the cycle in the US, which had been interrupted since the beginning of the year, resumed yesterday. This has put pressure on the US dollar in recent days, with the euro trading at its highest level against the greenback since September 2021. Gold prices were further boosted by the Fed interest rate cut speculation, surpassing the mark of 3,700 US$ per ounce for the first time on Tuesday.

Yesterday evening, the Fed went ‘live’ and lowered its key interest rate by 0.25 percentage points as expected, to 4.00 to 4.25 per cent and forecast – albeit by an extremely narrow majority of 10 to 9 members – two further interest rate cuts of 0.25 percentage points each for the two upcoming meetings at the end of October and mid-December, respectively. For 2026 and 2027, the monetary authorities expect only one interest rate cut each on average, resulting in a long-term key interest rate of 3.0 per cent.

Fed decisions: focus on inflation, the economy and labour market

Although the interest rate move had been expected, the subsequent Fed statement may have come as somewhat of a surprise. Compared to its June meeting, the Fed raised its economic growth forecasts for 2025 to 2027 and lowered its unemployment rate forecasts for 2026 and 2027 slightly, while raising its inflation forecast for 2026 by 0.2 percentage points to 2.6 per cent. The inflation target of 2.0 per cent is not expected to be reached again until 2028. Excessive inflation, a robust economy and a strong, albeit recently somewhat weakening, labour market could also cause the Fed to hold off on cutting key interest rates as sharply as currently expected.

Gold price between record high and profit-taking

Market movements that had pushed the euro to a four-year high against the US dollar and the gold price to a new record high of 3,707.50 US$ per ounce therefore reversed immediately following the publication of the Fed statement. The euro lost one cent against the US dollar, and the gold price dropped by around 50 US$ per ounce. A further contributing factor: market players had already positioned themselves heavily in euro/US dollar and gold long positions in the run-up to the Fed meeting. Follow-up purchases thus failed to materialise after the meeting, prompting profit-taking.

While gold still traded at 3,630 US$ per ounce last Thursday morning, it initially traded sideways between 3,615 and 3,655 US$ until Monday afternoon. The increasingly weaker US dollar then gave the gold price a fresh boost to 3,685 on Monday and a new record high of around 3,703 on Tuesday. Profit-taking caused the gold price to drop to 3,660 yesterday at midday. After the Fed meeting, the gold price in US dollars recovered to 3,707.50 and then dropped to 3,650. Gold started trading today at around 3,655 US$ per ounce.

Xetra-Gold temporarily above 100 € per gram

The Xetra-Gold price was slowed down slightly by the continuing rise of the euro but still reached a new record high. It initially weakened from 99.85 € per gram last Thursday morning to around 99.25. With the rise in the US dollar price of gold, Xetra-Gold strengthened at the beginning of the week and reached a new record high of 100.80 € per gram on Tuesday morning. After a setback to 99.45, it closed trading yesterday at 100.10 ahead of the Fed meeting. If the 7:00 price holds until the start of trading, Xetra-Gold is likely to trade at 99.60 € per gram this morning.

In the coming days, markets are likely to be busy trying to form a consistent opinion on Fed communication. With the Bank of England meeting at noon today and the Bank of Japan meeting tomorrow morning, other central banks are also set to announce interest their rate decisions, followed by Sweden and Switzerland, among others, next week.

I wish all readers a wonderful late summer weekend.