Last night, the gold price rebounded after Federal Reserve Chairman Jerome Powell warned of inflation risks for the US economy.
Gold traded at around US$3,380 an ounce, after declining 0.6% the previous day.
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What did the Fed say?
Last night, the US Fed opted to keep interest rates steady, holding them at their target of 4.25% to 4.5%.
Federal Reserve policymakers released their first economic forecasts since President Trump unveiled his sweeping tariffs.
Policymakers continue to see higher inflation due to tariffs.
As reported by CNBC, Chairman Powell said tariffs are an unavoidable cost increase to businesses and consumers.
Everyone that I know is forecasting a meaningful increase in inflation in coming months from tariffs because someone has to pay for the tariffs.
It will be someone in that chain that I mentioned, between the manufacturer, the exporter, the importer, the retailer, ultimately somebody putting it into a good of some kind or just the consumer buying it.
The Central Bank is now forecasting two rate cuts this year. However, Chairman Powell suggested the Central Bank was "well positioned to wait" before making any policy changes.
Will the gold price continue to rise?
Gold has been climbing over the past couple of weeks, as tensions in the Middle East continue to escalate.
Yesterday, US President Donald Trump said Iran had waived its chance to make a deal regarding its nuclear capabilities. It was reported by the Australian Financial Review that the US security team had held a meeting in the situation room. However, the extent of the US' potential involvement in the war remains unclear. Iran has vowed to retaliate if the US joins Israel's attack on the country.
According to Bloomberg, "the heightened geopolitical tensions and economic uncertainty have combined with robust buying from central banks and inflows to exchange-traded funds, pushing the precious metal almost 30% higher this year".
Gold-focused ASX exchange-traded funds (ETFs) have done incredibly well over the past 12 months. The Betashares Gold Bullion Currency Hedged ETF (ASX: QAU) is up 43% over the past year. Meanwhile, the Vaneck Gold Bullion ETF (ASX: NUGG) is up 50% over the same time frame.
A significant and sustained escalation in consumer prices may stop the Federal Reserve from cutting rates. This would likely be a negative for gold. Since gold doesn't pay interest, investors would see better value in fixed-income securities such as bonds.
However, a prolonged war between Israel and Iran would likely boost support for the yellow metal.
