Gold prices have risen for two consecutive days amid a stronger US Dollar. However, they remain near familiar levels as traders await crucial US economic data. XAU/USD traders are in a cautious mode as the Federal Open Market Committee (FOMC) starts its two-day meeting, culminating in a monetary policy decision on Wednesday. The XAU/USD is trading at $2,311, up 0.07%.
1. US Economic Data
Gold Steadies as tuesday’s US economic calendar is light, featuring the May NFIB Small Business Optimism Index. This index surpassed both expectations and April’s figures. On Wednesday, the Consumer Price Index (CPI) is expected to stay firm, reflecting persistent inflation despite significant rate hikes by the Federal Reserve (Fed) over the past few years.
2. FOMC Meeting and Economic Projections
After the CPI release, gold steadies as the Fed, led by Chair Jerome Powell, will announce its monetary policy statement and the Summary of Economic Projections (SEP). The SEP includes the ‘dot plot,’ showing the likely path of monetary policy. A Reuters poll indicates that most analysts predict a 25-basis-point (bps) interest rate cut by the Fed in 2024. Data from the Chicago Board of Trade (CBOT) suggests that traders expect 28 bps of easing by December 2024.
3. Market Reactions and Expectations
Currently, the yield on the US 10-year Treasury note is down six basis points to 4.41%, posing a challenge for gold. The DXY, an index of the US Dollar against six other currencies, rose by 0.15% to 105.25.
4. Daily Market Movers
News that the People’s Bank of China paused its 18-month gold buying spree has impacted the precious metal. MarketWatch reports that the PBOC’s holdings remained steady at 72.80 million troy ounces in May.
The NFIB Small Business Optimism Index reached 90.5 in May, the highest this year, up from April’s 89.7. According to NFIB Chief Economist Bill Dunkelberg, inflation remains the most critical issue for businesses. Companies are expected to hire more, although financing is a significant concern.
5. Upcoming US CPI Data
The US CPI for May is expected to dip from 0.3% to 0.1% month-over-month, with core CPI remaining steady at 0.3% month-over-month. Year-over-year, CPI is expected to hold at 3.4%, while core CPI might decelerate from 3.6% to 3.5%.
Recent US jobs data suggests a robust economy, which may make the Fed less likely to ease policy. However, a lower-than-expected inflation report could influence the Fed to anticipate three interest rate cuts later this year. The CME FedWatch Tool shows that the probability of a Fed rate cut in September has dipped from 50% last week to 46.7%.
6. Technical Analysis: Gold Steadies Price Trends
The gold price has formed a Head-and-Shoulders pattern, indicating a potential drop to the $2,160-$2,170 range. Currently, gold remains subdued at $2,300, awaiting new catalysts, possibly the Fed’s policy decision.
If XAU/USD falls below $2,300, the next support levels are the May 3 low of $2,277 and the March 21 high of $2,222. Further declines could see buyers defending the $2,200 level. Conversely, if gold prices rise above $2,350, expect consolidation between $2,350 and $2,380.
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