Powell's dovish remarks caused gold prices to soar instantly! Spot gold is rising rapidly. What's the next step?

On Wednesday, the Federal Reserve’s decision was announced, and the market immediately responded—spot gold surged by $20.20, closing at $4,228.47 per ounce. Behind this rally, the key factor was the dovish signals released by Fed Chair Powell during the press conference, which caught traders’ attention.

US Dollar and Treasury Yields Decline Simultaneously, Benefiting Gold

The Fed cut interest rates by 25 basis points to the 3.50%-3.75% range as expected, but what truly triggered market volatility was Powell’s concerns about the labor market. He emphasized that there are downside risks in the labor market while downplaying inflation concerns, leading to a major shift in market sentiment.

As a result, the US Dollar Index (DXY) closed Wednesday down 0.6% at 98.65, marking the largest single-day decline since September 16. Meanwhile, the 10-year US Treasury yield fell by 3.5 basis points to 4.155%, with real yields also decreasing. In this environment, interest rate-sensitive gold naturally became a beneficiary, with investors turning to safe-haven assets.

Policy Makers Hint at Possible Rate Cuts Next Year

In the Federal Open Market Committee (FOMC) voting, although three officials opposed the rate cut this time, the majority of members’ attitudes are clear. According to the published “dot plot” forecast, policymakers hinted that the federal funds rate could be around 3.4% next year, implying a possibility of another 25 basis point cut. Regarding the longer-term neutral rate, Fed officials believe it is approximately 3%.

Powell further emphasized during the press conference that after lowering rates by 75 basis points this year, the Fed is now “well-positioned” to continue monitoring economic developments. This cautious stance has alleviated market concerns about aggressive rate hikes in the near term.

Technical Outlook Shows Strength, Upside Potential Expected

From a technical perspective, gold’s upward momentum remains intact. The Relative Strength Index (RSI) still indicates a bullish bias, showing buying strength persists. If gold prices continue to rise, the primary target will be around $4,300 per ounce; once that level is broken, gold could aim for the historical high of $4,381 per ounce.

Traders Should Beware of Downside Risks

However, caution is advised in trading. If gold falls below the key support at $4,200 per ounce, the next line of defense will be the 20-day simple moving average (SMA) near $4,153. Below that, the 50-day SMA at around $4,090, and the psychological level of $4,000 per ounce serve as further support levels.

Is Swapping Gold for Gold Worth It? Reassessing the Hedging Logic

In the current policy environment, many investors are questioning whether swapping gold for gold is worthwhile. In fact, when the US dollar continues to weaken and real interest rates decline, the appeal of gold as a non-yielding asset increases. Compared to holding currencies that face devaluation risks, gold’s hedging properties become more prominent. Especially during rate-cutting cycles, gold often provides a more stable value anchor.

Whether for short-term trading or asset allocation, the current market environment offers favorable conditions for a bullish gold outlook.