Gold price edges lower amid cautious Fed rhetoric
|Most recent article: Gold rangebound as traders await cues
- Gold price attracts some sellers in Tuesday’s early European session.
- The stronger US economic data and the Fed's hawkish stance continue to underpin the yellow metal.
- Investors will focus on the speech from Fed’s Cook and Bowman on Tuesday.
Gold price (XAU/USD) trades in positive territory on Tuesday despite the weaker Greenback. The stronger-than-expected US Purchasing Managers Index (PMI) released last week triggered the Federal Reserve (Fed) officials to push out the timing of the first interest rate cut this year, which continues to cap the gold’s upside. However, the safe-haven flows on the back of geopolitical tensions in the Middle East and Ukraine might boost the yellow metal in the near term.
Investors will take more cues from the Fed members' speeches on Tuesday, with Lisa Cook and Michelle Bowman scheduled to speak. The crucial US economic data to be closely watched this week will be the final reading of the US Gross Domestic Product (GDP) for the first quarter (Q1) on Thursday and the Personal Consumption Expenditure (PCE) Price Index for May, which is due on Friday. Any evidence of a trend of easing inflation could prompt the expectation of Fed rate cuts later in 2024. This, in turn, might drag the Greenback lower and create a tailwind for USD-denominated Gold.
Daily Digest Market Movers: Gold price remains sensitive to Fed rate-cut path
- San Francisco Federal Reserve Bank President Mary Daly said on Monday that she does not believe the Fed should cut rates before the central bank is confident that inflation is headed towards 2%. Daly added that the labour market, albeit strong, might face rising unemployment if inflation remains persistent.
- The final reading of the US headline and Core Personal Consumption Expenditures (PCE) Price Index is expected to show an increase of 2.6% YoY in May.
- Traders are now pricing in a 66% odds of a Fed rate cut in September, up from 59.5% at the end of last week, according to the CME FedWatch Tool.
- Israeli Prime Minister Benjamin Netanyahu stated that the most intense phase of the assault against Hamas in Gaza is close to ending while stressing the broader war against Hamas wages on, per CNN.
- Russia has condemned the US for a "barbaric" strike in Crimea, which used US-provided missiles, killing at least four people, including children, and injuring 151 others. On Monday, Russia's Foreign Ministry summoned US Ambassador Lynne Tracy and accused the US of launching a "proxy war," warning that retaliation would "definitely follow,” per local news agency Aljazeera.
Technical Analysis: Gold price could see downward pressure in the shorter term
The gold price trades on a softer note on the day. The precious metal has formed a descending trend channel since May 10 on the daily timeframe. However, the yellow metal keeps the bullish vibe above the key 100-day Exponential Moving Average (EMA). Nonetheless, further consolidation cannot be ruled out as the 14-day Relative Strength Index (RSI) hovers around the 50-midline, indicating a neutral level between bullish and bearish positions.
The upper boundary of the descending trend channel at $2,350 will be the first stop for XAU/USD. A break above this level will pave the way to $2,387, a high of June 7. Further north, the next hurdle is seen at the all-time high of $2,450.
On the other hand, a low of June 21 at $2,316 acts as an initial support level for the yellow metal. Any follow-through selling will see a drop to $2,285, a low of June 7. The key contention level to watch is the $2,255-$2,260 zone, portraying the 100-day EMA and the lower limit of the descending trend channel.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.02% | 0.16% | -0.50% | -0.65% | 1.09% | 0.17% | 0.40% | |
| EUR | 0.02% | 0.17% | -0.49% | -0.66% | 1.11% | 0.20% | 0.42% | |
| GBP | -0.16% | -0.17% | -0.67% | -0.83% | 0.95% | 0.03% | 0.24% | |
| CAD | 0.51% | 0.49% | 0.67% | -0.15% | 1.60% | 0.70% | 0.91% | |
| AUD | 0.68% | 0.68% | 0.82% | 0.18% | 1.75% | 0.86% | 1.06% | |
| JPY | -1.10% | -1.11% | -0.95% | -1.63% | -1.77% | -0.94% | -0.71% | |
| NZD | -0.18% | -0.20% | -0.02% | -0.70% | -0.86% | 0.90% | 0.26% | |
| CHF | -0.40% | -0.42% | -0.24% | -0.91% | -1.07% | 0.68% | -0.22% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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