Interest Rates on Hold, Gold Rises Strongly and the Dollar Falls, How Come?
Gold prices surged sharply despite the Federal Reserve's (The Fed) decision to hold interest rates, as the market focused more on the weakening dollar and the growing risk-off mood. In trading on Wednesday (January 29) US time, spot gold rose around 4% to $5,393.19/oz, and US gold futures closed up 4.3% at $5,303.60/oz, bringing prices closer to the psychological level of $5,400/oz.
This surge occurred amidst a major narrative: investors seeking safe-haven assets amid heightened economic and geopolitical uncertainty. Reuters noted that the market barely reacted to the Fed's "hold" decision, as it was widely expected.
From a policy perspective, the Fed maintained its federal funds rate target at 3.50%–3.75%. In its official statement, the central bank described economic activity as "solid," the job market as stabilizing, but inflation as still "somewhat elevated," and uncertainty about the outlook remaining high.
So why does gold keep rising when interest rates aren't being cut? The answer: gold prices don't just react to today's rates, but to future expectations—especially when the dollar weakens. In a global market report, Reuters reported that the dollar was hit by a combination of expectations for further rate cuts this year, tariff uncertainty, policy volatility, central bank independence issues, and fiscal deficits, which weighed on investor confidence.
Market data showed the dollar index (DXY) rose 0.49% to 96.37 on Wednesday, but not before the dollar had just experienced its biggest daily decline (percentage) since August 1 and briefly touched a four-year low. This kind of "unconfident" dollar condition usually serves as a "tailwind" for gold (because gold is priced in USD).
In a press conference, Fed Chairman Jerome Powell emphasized that the US economy remains strong and that risks to inflation and employment are considered diminishing. The decision to hold interest rates was taken by a 10-2 vote, but two governors dissented and voted for a 25 bps cut.
The market also interpreted this "hold" stance not as a hawkish stance by the Fed, but rather as a wait-and-see approach to data. Reuters noted that US bond yields were limited (10-year around 4.25%, 2-year around 3.57%), and interest rate futures were again pointing to the next cut being more likely in June.
On the commodities side, the gold rally has already "overheated." One analyst quoted by Reuters even called the precious metal's rally "taking on a life of its own," with dip-buying patterns remaining strong, although overbought conditions make the market vulnerable to a correction at any time.
The gains also spread to other metals: silver rose around 3.3% to $116.69/oz, while platinum and palladium also strengthened.
Going forward, the market's focus will typically be on two things: (1) whether the dollar continues to weaken or begins to stabilize, and (2) whether inflation/employment data is cool enough to lock in expectations of another interest rate cut. During times of high uncertainty and a fragile dollar, gold tends to remain "embraced" by investors—even when interest rates remain on hold.
Source: Newsmaker.id
