Gold prices and Fed comments have dipped to around $2,310 as Federal Reserve officials suggest keeping interest rates high due to persistent inflation. High interest rates generally discourage holding non-yielding assets like gold.
Fed Comments Impacting Gold
Gold prices and Fed comments slipped on Wednesday after a half-percent decline the previous day. Fed officials, including Lisa Cook and Michelle Bowman, indicated that it’s premature to cut interest rates.
Lisa Cook’s Statement
Fed Governor Lisa Cook mentioned that while rate cuts might be necessary eventually, current economic conditions warrant maintaining high rates.
Michelle Bowman’s Perspective
Michelle Bowman emphasized that cutting rates is only appropriate when inflation trends more reliably towards the Fed’s 2% target. She believes inflation is gradually declining with current policies.
Market Reactions
San Francisco Fed President Mary Daly highlighted the need to balance inflation control with labor market stability. She warned that rising unemployment might force the Fed to lower rates to support the economy.
Rate Cut Probabilities
Market-based probabilities of a rate cut by the Fed’s September meeting have slightly decreased from 67% to 66%, as reported by the CME FedWatch tool. A rate cut could potentially boost gold prices.
Upcoming Economic Data
Gold traders are keenly watching the US Personal Consumption Expenditures (PCE) Price Index for May, due on Friday. This index is the Fed’s preferred measure of inflation.
Inflation Data Impact
A lower-than-expected PCE result could increase the likelihood of a rate cut, benefiting gold prices. Conversely, higher inflation might sustain current rates, keeping gold prices pressured.
Technical Analysis
Key Support Levels
Gold is approaching key support around $2,279, near the neckline of a potential topping pattern. A break below this level might signal a stronger downward move.
Head-and-Shoulders Pattern
The XAU/USD pair has been forming a bearish Head-and-Shoulders pattern over the last three months. A break below $2,279 could confirm a reversal with targets at $2,171 and $2,105.
Potential for Upside
If gold manages to break above $2,350, it could move towards the June 7 high of $2,380 and possibly the all-time high of $2,450, signaling a continuation of the long-term uptrend.
Conclusion
Gold prices are currently influenced by the Federal Reserve’s stance on interest rates. Traders are advised to monitor upcoming inflation data and key technical levels for future price movements. For more detailed gold market updates, visit Daily Gold Signal.
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