Gold price found support near $2,315 in the early American session on Monday. This stability comes as the US Dollar (USD) corrects amidst firm expectations that the Federal Reserve (Fed) will implement two rate cuts this year. The US Dollar Index (DXY), which measures the dollar against six major currencies, dropped to 105.60. These rate-cut expectations have strengthened due to easing inflation pressures in the United States (US).
Easing Inflation and Economic Indicators
The US Consumer Price Index (CPI) report revealed that inflation slowed more than anticipated in May. Additionally, the preliminary S&P Global Purchasing Managers Index (PMI) report for June indicated moderate cooling in cost growth. According to the report, “Selling price inflation cooled to a five-month low in June. The rate of increase fell to a five-month low in the services sector and a six-month low in manufacturing.”
Federal Reserve’s Policy Expectations
The CME FedWatch tool suggests that the Fed will likely begin its rate-cutting campaign at the September meeting, with subsequent cuts in November or December. The 30-day Federal Funds futures data show a 66% chance of a September rate cut.
Bond Yields and Gold Prices
Despite this, gold prices may face pressure as US bond yields have rebounded. Fed policymakers expect only one rate cut this year, as shown in the June FOMC economic projections. They wish to see prolonged inflation reduction before shifting policies. The 10-year US Treasury yields increased to 4.27%, raising the opportunity cost of holding non-yielding assets like gold.
Market Movers: Gold and the US Dollar
Gold’s price found buying interest at $2,315 after a sharp decline on Friday, driven by a stronger USD. The preliminary S&P Global PMI report for June showed unexpectedly strong economic activity, boosting the USD and making gold more expensive for currency holders. The Composite PMI rose to 51.7, against expectations of 51.0.
Key Economic Data to Watch
This week, investors will focus on revised Q1 Gross Domestic Product (GDP) data and the core Personal Consumption Expenditure (PCE) price index for May. The core PCE price index, the Fed’s preferred inflation measure, will provide fresh clues on the timing and extent of future rate cuts.
Global Geopolitical Tensions
On the international front, a security pact between Russian President Vladimir Putin and North Korean leader Kim Jong-un has heightened geopolitical risks. The treaty includes military assistance pledges, which could support gold prices by increasing global tensions.
Technical Analysis: Gold Price Range
The gold price has been consolidating between $2,277 and $2,450 for over two months. The 50-day Exponential Moving Average (EMA) at $2,318 provides strong support, while the 14-day Relative Strength Index (RSI) indicates indecision among traders.
If the gold price drops below the May 3 low of $2,277, it could target the March 21 high of $2,223. Conversely, a break above the May 20 high of $2,450 could lead to new highs.
Conclusion
Gold price remains robust above $2,300 due to anticipated Fed rate cuts, easing US inflation, and global geopolitical tensions. Investors should monitor key economic indicators and global events to gauge future price movements.
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