Gold continues historic gains after Fed’s favorable speech

20 Mart 2025

Written by Samer Hasn, Senior Market Analyst at XS.com

Gold continues to record historic highs for the third consecutive day, reaching $3,057 per ounce in spot trading.

Gold’s gains come after Jerome Powell’s speech, which appeared to be in line with what investors wish in various aspects, both by avoiding a hawkish tone and by emphasizing the uncertainty created by tariffs.

Powell’s favorable speech was the latest link in a chain of factors fueling gold’s continued gains. Where growing concerns about the potential ramifications of Donald Trump’s trade policy and the economic turmoil resulting from the continued reluctance to impose tariffs were among the most prominent factors supporting the yellow metal to continue its gains.

The speech following the announcement of the decision to keep current rates unchanged focused on tariffs, which helped shape monetary policymakers’ projections. Despite the uncertainty caused by the tariffs, Fed officials significantly lowered their US economic growth forecasts to 1.7% for the current year from 2.1%. The speech also did not carry that hawkish tone, which could have raised concerns about a more prolonged tightening than expected. Members also project that the impact of the tariffs will be temporary—though they will temporarily hinder efforts to bring inflation back to its target—and the median rate projection is in favor of two rate cuts this year.

Ultimately, Powell’s speech and the Fed’s Summary of Economic Projections did not change market expectations about the path of monetary policy, and the likelihood remains that we will see at least two to three rate cuts this year, allowing gold to continue its gains eventually.

There is a greater than 50% chance that this year’s meetings will conclude with a 75-basis point cut from the current range, which falls below the median projection among policymakers, according to the CME FedWatch Tool.

In the context of monetary policy, the Federal Reserve has also decided to slow the pace of reducing its asset holdings (known as the balance sheet) starting next April, from $25 billion to $5 billion. This is a tactical measure to avoid any disruption in the money market resulting from a liquidity shortage following the anticipated debt ceiling increase.

A slower balance sheet runoff will likely reduce the pace at which the Fed trims its demand for Treasury securities. This, in turn, could help keep yields lower, adding further support for gold.

On the economic front, Fitch Ratings lowered its global economic growth forecast from 2.9% to 2.3% in 2025, and its US economic growth forecast from 2.1% to 1.7% for the same period, and to 1.5% from 1.7% for 2026. The rating agency blamed the US trade war, which may provide further evidence of the negative impact of tariffs, which in turn provides an additional incentive for safe haven demand.

Supply chains may not only be disrupted by tariffs, but renewed tensions in the Middle East may also threaten, at least temporarily. Since the weekend, we have witnessed an unprecedented escalation by the United States in Yemen, in addition to threats to hold Iran responsible for military support and attacks launched by the Houthis. This could revive concerns about a broader regional war and has been a support for gold’s gains since the beginning of the week.

Conversely, any disruption to shipping in the region, I believe it will be temporary, given Iran’s weakness—which will likely worsen with Maximum Pressure from Trump—and the siege imposed on the Houthis.

 

Zaid Barem / ymm