Gold market update remained trapped within a range, hovering around the support levels on Monday. The XAU/USD has been in this range since peaking at an all-time high of $2,450 on May 20.
Investor Uncertainty and Fed Decisions
The primary factor causing this range-bound movement is the uncertainty surrounding the US Federal Reserve’s (Fed) interest rate policies. Investors are unsure when the Fed will begin cutting interest rates. Fed officials are cautious and reluctant to commit to a rate cut date without substantial proof of decreasing inflation.
Gold’s Sensitivity to Interest Rates
Gold market update being a non-interest-bearing asset, is highly sensitive to interest rate changes. When rates are high, there is an opportunity cost to holding gold. Consequently, gold demand tends to increase when interest rates are lower.
Awaiting Clearer Fed Signals
Gold is in a holding pattern as traders await more definitive signals from the Fed regarding its policy intentions. The Fed’s preferred inflation gauge, the US Personal Consumption Expenditures (PCE) Price Index, showed a year-over-year (YoY) increase of 2.6% in May, nearing the Fed’s 2.0% target. Despite this, Fed officials remain cautious.
Fed Officials’ Statements
Richmond Fed President Thomas Barkin highlighted the ongoing “lags” in monetary tightening and cautioned about the potential for price increases in services and shelter. San Francisco Fed President Mary Daly mentioned that while cooling inflation indicates effective monetary policy, it is too early to predict the appropriate time for rate cuts.
Market-Based Rate Cut Bets
Market expectations, as indicated by the CME FedWatch tool, suggest a 63% probability of a rate cut in September, slightly down from 64% previously.
Gold’s Potential Scenarios
According to Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, gold is in a win-win situation. Regardless of whether the Fed signals a rate cut, gold is likely to benefit. If high interest rates persist, gold demand as a safe haven will increase. Conversely, if the Fed signals a rate cut, gold prices will likely rise due to a weaker dollar.
Technical Analysis of Gold
Gold has found support at a downsloping trendline it recently broke above. This trendline connects the “Head” and “Right Shoulder” of an invalidated Head and Shoulders (H&S) pattern.
Potential Price Movements
If gold breaks above $2,340, it could rise to $2,369, with the next target at $2,388. Conversely, if it falls below the compromised topping pattern’s neckline at $2,279, a reversal might target $2,171 and $2,105.
Trend Analysis
In the short and medium term, gold may trend sideways. However, the long-term trend remains upward.
Conclusion
Gold prices are currently influenced by the uncertainty surrounding the Fed’s interest rate policies. For more updates and detailed analysis, visit our Daily Gold Signal page. For daily gold updates, check out this Daily Gold Update link.
