Gold price slips as Fed holds rates, warns of heightened inflation

• Fed leaves rates unchanged at 4.25%-4.50%, highlights rising uncertainty in economic outlook.
• Policymakers note solid growth and strong labor market but flag elevated inflation risks.
• Balance sheet reduction to continue as planned; traders eye Powell's comments for policy direction.

Gold price remains on the back foot after the Federal Reserve kept interest rates unchanged. The XAU/USD trades at $3,394, down over 1%, as traders brace for Fed Chair Jerome Powell's press conference.

XAU/USD down over 1% to $3,394 as traders await Powell's press conference following cautious Fed tone.

The Federal Reserve held rates at the 4.25%-4.50% range unanimously, as expected, and mentioned that uncertainty about the economic outlook had increased further, adding that the risks of higher unemployment and inflation had risen.

Fed officials added that the economy remains expanding at a solid pace, acknowledging that the labor market remains solid, but inflation risks are seen as somewhat elevated.

Regarding the balance sheet reduction, the statement said ". The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities."

Gold price reaction 

Gold prices slightly jumped past $3,390 but failed to get to $3,400. However, the main catalyst would be the Fed Chair Jerome Powell at his press conference. If he stays as hawkish as he has previously been, expect further XAU/USD downside, which could put into play a test of the $3,350 figure ahead of the $3,300 mark.

Conversely, a dovish stance could pave the way for Gold buyers to test $3,450 and possibly the record high of $3,500.