The prices of gold faced a significant decline, dropping close to $2,340 during Wednesday’s European trading session. This decline followed a brief attempt to regain ground when the price reached around $2,360. However, it quickly fell again as market sentiment remained cautious, driven by concerns over upcoming US inflation data and the Federal Reserve’s focus on maintaining high interest rates.
Gold Prices Fall Amid US Inflation Data Expectations
Gold prices dropped sharply, with traders reacting to Federal Reserve officials’ comments about keeping interest rates elevated for a prolonged period. This has led to increased concern ahead of the release of the US Core Personal Consumption Expenditure (PCE) Price Index data, which is expected on Friday. This key inflation measure, closely watched by the Fed, is anticipated to rise by 0.3% monthly and 2.8% annually. The steady rise in inflation dampens the outlook for gold, as the higher interest rates diminish its appeal by raising the opportunity cost of holding non-yielding assets like gold.
Impact of High Interest Rates on Gold Prices
Higher inflation expectations have kept the Federal Reserve in a stance where they are unlikely to lower interest rates anytime soon. This impacts gold prices negatively, as higher rates tend to boost the US Dollar and bonds, making them more attractive than gold. Currently, the US Dollar has strengthened to 104.70, and 10-year US Treasury yields have reached a three-week high of 4.57%. These market shifts reflect the cautious sentiment as investors await further economic data.
Gold Price Weakness Following Fed’s Hawkish Stance
Gold prices continue to trend downward after briefly rebounding to near $2,360. Traders have started reducing their bets on the Federal Reserve cutting interest rates by September, especially after the Fed’s hawkish guidance. According to the CME FedWatch Tool, the likelihood of a rate cut has dropped to 46%, down from 57.5% just a week ago. Fed officials, including Minneapolis Fed President Neel Kashkari, have emphasized that interest rates will likely remain high unless there’s substantial evidence of a sustained return to 2% inflation. Despite some cooling in inflation during April, the Fed remains cautious, pointing to a strong labor market and resilient inflationary pressures.
Technical Analysis: Gold Price Under Pressure
The technical outlook for gold also shows signs of further weakening. A breakdown in the Inverted Flag pattern on the hourly chart signals increased selling pressure. Gold has fallen below the 50-period Exponential Moving Average (EMA) at around $2,350, and the 14-period Relative Strength Index (RSI) has shifted to the bearish zone between 20.00 and 40.00, confirming negative momentum. If the price of gold drops below its May 24 low of $2,320, further declines are likely. However, if it breaks above the May 28 high of $2,365, a recovery could be on the horizon.
Conclusion
Gold prices are facing sustained pressure as traders react to hawkish signals from the Federal Reserve and upcoming US inflation data. With interest rates likely to stay high for an extended period, the outlook for gold remains uncertain. Investors are cautious, awaiting clearer inflation data and signals from the Federal Reserve regarding potential rate adjustments in the future.
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