Sharp Gold Volatility After the Fed as Markets Price in a Prolonged Tight Monetary Policy

Marsad Al Dahab reported continued volatility in both the local gold market and global bullion markets during Thursday's trading, as investors continued to digest the Federal Reserve's hawkish signals despite its decision to keep interest rates unchanged. After losing nearly 1.7% in the previous session, gold recovered most of its losses during Thursday's trading, briefly climbing above the $4,300 per ounce level before surrendering part of its gains and slipping back to around $4,269, as markets balanced expectations of prolonged restrictive monetary policy against easing geopolitical tensions and weaker oil and U.S. dollar prices.

The price of 21-karat gold declined by approximately EGP 5 during Thursday's trading to around EGP 6,135 per gram compared with Wednesday's close, while the international gold price rose by about $8 to approximately $4,269 per ounce, according to World Gold Council data at the time of writing.

Meanwhile, 24-karat gold traded at around EGP 7,074 per gram, 18-karat gold reached approximately EGP 5,306 per gram, and the gold pound coin was priced at around EGP 49,520.

On Wednesday, 21-karat gold had fallen by EGP 40, opening at EGP 6,265 per gram before closing at EGP 6,225, while the global gold price rose from $4,321 to $4,334 per ounce by the end of the session.

Marsad Al Dahab noted that gold continues to trade in the Egyptian market at a premium of around EGP 165 above its fair value based on international prices and the exchange rate. The premium reflects sustained investment demand for gold bars and bullion coins. Strong demand in recent days has also led to shortages of smaller-weight gold bars across most manufacturers, prompting some dealers to adopt pre-order sales and delay immediate deliveries by four to seven days.

The report added that global gold prices are currently being driven by two key factors. The first is the Federal Reserve's commitment to maintaining a restrictive monetary policy for longer, supporting the U.S. dollar and Treasury yields while weighing on non-yielding assets such as gold. The second is the easing of geopolitical tensions following the announcement of the end of the conflict between the United States and Iran, reducing safe-haven demand.

Recent market activity also indicates that the exceptional inverse relationship between gold and oil, which dominated trading during recent weeks, has started to weaken. Gold is gradually returning to trading according to its traditional fundamentals, including U.S. monetary policy, interest rate expectations, the strength of the U.S. dollar, central bank purchases, and investment flows, rather than moving primarily in response to oil prices and geopolitical developments.

According to Marsad Al Dahab, this shift represents a positive development for the market, as it restores gold's role as an independent financial asset whose price can once again be analyzed based on economic and technical fundamentals rather than extraordinary geopolitical influences.

On the monetary policy front, the Federal Reserve's first meeting under Chairman Kevin Warsh delivered a notably hawkish message despite leaving the benchmark interest rate unchanged at 3.50%-3.75% for the fourth consecutive meeting. Updated economic projections revealed growing divisions among policymakers regarding the future path of interest rates, alongside higher inflation forecasts and lower economic growth expectations, reinforcing market expectations that borrowing costs could remain elevated for longer.

During his first post-meeting press conference, Warsh reaffirmed the Federal Reserve's commitment to its 2% inflation target and announced the abandonment of forward guidance in favor of a more data-dependent approach to monetary policy.

Markets are now awaiting the release of U.S. weekly jobless claims data, one of the Federal Reserve's closely watched labor market indicators, which could significantly influence gold and U.S. dollar movements during the coming trading sessions.

Marsad Al Dahab believes that gold's decline following the Federal Reserve meeting was not driven by the decision to hold interest rates steady, but rather by the hawkish signals delivered through the Fed's statement and Chairman Warsh's remarks. Those signals strengthened expectations that restrictive monetary policy will remain in place for longer, lifting both the U.S. dollar and Treasury yields and increasing pressure on gold, which does not generate interest income.

The report concludes that financial markets respond not only to central bank decisions but also to the future policy path they communicate. Therefore, upcoming U.S. inflation and labor market data will remain the primary drivers of gold prices in the near term, alongside continued central bank gold purchases, which remain one of the strongest long-term sources of support for the precious metal.