The gold market has seen a notable decline, with prices nearing $2,340 during Wednesday’s New York session. After a brief recovery attempt toward $2,360, the precious metal lost momentum, marking a sharp downturn. This gold price falls is largely attributed to signals from Federal Reserve (Fed) officials who have hinted at maintaining higher interest rates for an extended period.
As the market shifts focus towards the upcoming release of the US core Personal Consumption Expenditure (PCE) Price Index for April, investors are exercising caution. This key inflation measure, set to be released on Friday, is expected to show steady growth. Analysts predict a monthly rise of 0.3% and an annual increase of 2.8%.
The anticipated growth in the core PCE data suggests that interest rates may remain elevated, a scenario that is unfavorable for gold prices. Holding non-yielding assets like gold becomes more costly as interest rates climb, making interest-bearing assets more attractive and boosting the US Dollar’s value.
Currently, the US Dollar is approaching the 105.00 mark, while 10-year US Treasury yields have hit a new three-week high at around 4.60%, driven by cautious market sentiment.
Market Reaction: Gold Prices on the Defensive
Gold prices have resumed their downward trend after briefly rebounding to nearly $2,360. The precious metal is under selling pressure as traders begin unwinding large positions, anticipating that the Fed may cut interest rates in September.
However, confidence in a potential rate cut has diminished, as the Fed maintains a hawkish stance on interest rates. According to the CME FedWatch tool, the likelihood of a rate cut in September has dropped to 46%, down from 57.5% just a week ago.
Fed officials remain patient with the current interest rate policy, citing insufficient evidence that inflation has reached the desired 2% target. Despite some cooling in inflation in April, following a strong first quarter, policymakers emphasize the need to keep interest rates high, pointing to concerns about the ongoing strength of the labor market.
Moreover, Fed policymakers have signaled a willingness to tighten policy further if progress in combating inflation stalls or if price pressures rise again. Minneapolis Fed Bank President Neel Kashkari mentioned in a CNBC interview that while the chances of a rate hike are low, all options remain open. Kashkari added that the Fed would need several more months of positive inflation data before considering rate cuts, as reported by Reuters.
Technical Analysis: Gold Price Faces Further Decline
Gold prices have weakened further after breaking down from an Inverted Flag chart pattern on the hourly chart. This breakdown suggests a resurgence of the downward trend, driven by new sellers entering the market. The near-term outlook for gold remains uncertain as the price falls below the 50-period Exponential Moving Average (EMA) at around $2,350.
The 14-period Relative Strength Index (RSI) has entered bearish territory, ranging between 20.00 and 40.00, indicating that bearish momentum is building.
If gold prices break below the May 24 low of approximately $2,320, further downside movement is likely. However, a recovery above the May 28 high, at around $2,365, could shift sentiment back to bullish.
Conclusion
The gold market remains under pressure as traders react to the Fed’s commitment to maintaining higher interest rates. With the US core PCE inflation data on the horizon, the outlook for gold remains uncertain. Investors should monitor key technical levels closely as the market could experience further volatility in the coming days.
For more insights and daily updates on gold prices, check out our Daily Gold Update and visit our homepage at Daily Gold Signal for expert analysis and forecasts.
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