How gold is reacting ahead of the US Fed rate cut decision today

Gold prices stayed steady on Wednesday (September 18) as all eyes turned to the US Federal Reserve’s rate cut decision, expected later in the day.

Investors are closely watching whether the Fed will opt for a 25 basis point or 50 basis point (bp) cut.

This could have significant implications for gold prices.

Gold prices in India

In India, the price of 24-carat gold rose by ₹180, reaching ₹7,351 per gram.

Meanwhile, 22-carat gold saw an increase of ₹200, now priced at ₹6,757 per gram.

Despite the mid-week rise, 24-carat gold has experienced a 3.35% decline over the past week and a 2.6% drop over the past month.

Global gold trends

Globally, spot gold remained stable at $2,567.13 per ounce by 0508 GMT.

It had hit a record high of $2,589.59 per ounce on Monday.

US gold futures edged up by 0.1%, trading at $2,593.60 per ounce.

The Federal Reserve is set to announce its rate cut decision at 1800 GMT.

According to the CME FedWatch tool, markets now predict a 65% chance of a 50-basis point rate cut, up from 34% last week.

“There’s a risk that market expectations of a 50-bp cut are too high. If the Fed opts for just 25-bp, we could see yields and the dollar rise sharply, which would put downward pressure on gold,” said Matt Simpson, senior analyst at City Index.

Impact of interest rate cut on gold

Gold typically benefits from lower interest rates as it reduces the opportunity cost of holding the non-yielding asset.

Investors often turn to gold during rate-cut cycles to preserve value as the dollar weakens.

“Gold tends to be a preferred investment when rates drop,” said Prathamesh Mallya, DVP-Research, Non-Agri Commodities and Currencies at Angel One Ltd.

“If the Fed delivers only a 25-bp cut, the market could see higher yields and a stronger dollar, weighing down gold. However, ongoing geopolitical risks may keep gold demand supported.”

Investment outlook

Investors holding gold or gold-backed assets like ETFs are waiting for the Fed’s move.

A larger 50-bp cut could boost gold prices further as the dollar weakens.

However, if the cut is smaller, short-term volatility in gold prices is expected.

“Today’s rate decision could create significant price swings in gold. Long-term investors may benefit from staying patient, while short-term traders should be cautious,” Mallya said.

Retail sales and geopolitical factors

Recent data showed US retail sales unexpectedly rose 0.1% in August, signalling that the economy remains solid.

Despite this, geopolitical tensions in the Middle East and the ongoing Russia-Ukraine conflict continue to support demand for safe-haven assets like gold.

Catch our latest updates on US Fed rate decision here