Has the Trading Logic for Gold Changed After the Federal Reserve Cut Interest Rates by 50 Basis Points?

Hey guys, after Fed's 50 basis point rate cutting decision, i'd like to provide some insight of Gold price, which is highly affected by Fed's decsion and economic conditions and geopolitical risks.

Gold prices remain defensive as the USD recovers from its year-to-date low following the FOMC meeting.

Despite the Federal Reserve's significant interest rate cut on Wednesday, gold prices continue to struggle in attracting buyers. The recovery in U.S. bond yields bolsters the USD, which in turn limits the upside potential for the non-yielding metal. Concerns over a potential economic slowdown, coupled with geopolitical risks, help to contain the downside for gold.

From a technical perspective, the daily chart for XAU/USD suggests that the risk is skewed to the upside. The pair remains close to the all-time high of $2,589.50 recorded earlier this week, with all moving averages pointing higher and situated well below the current price. The nearest support comes from the 20-day Simple Moving Average (SMA) in the $2,520 range. Meanwhile, technical indicators stay comfortably above their midlines, albeit with uneven and limited directional momentum.

In the short term, however, the risk appears to lean towards the downside. The 20-day SMA, which lacks clear direction, acts as intraday resistance, hindering further gains. The 100-day and 200-day SMAs have partially lost their upward momentum, remaining well below the current level. Finally, the technical indicators are trending lower, with the Momentum indicator accelerating downward below its 100 line.

Support levels: $2,561.65, $2,550.00, $2,542.40

Resistance levels: $2,574.80, $2,590.00, $2,605.00

Fundamental OverviewGold is trading around $2,570 per troy ounce on Wednesday, remaining flat on the day as the market awaits the Federal Reserve’s monetary policy announcement. The U.S. central bank is anticipated to cut interest rates for the first time in four years, following a period of record-high rates driven by soaring inflation in the wake of the pandemic. Policymakers are also considering the impact of monetary tightening on economic growth, although this may not be explicitly communicated to the market.

The Fed will also release the Summary of Economic Projections (SEP), which includes updated forecasts for growth, inflation, and unemployment, along with officials’ outlook on future monetary policy. This could significantly influence the USD, as financial markets have already priced in a 25 basis point rate cut ahead of the announcement.

Generally, a more dovish outcome would likely lead to a weaker USD against major currencies, while an unexpectedly hawkish stance could have a more pronounced impact due to the element of surprise, thereby supporting the USD.