Gold declines below $2,400 on bleak interest-rate outlook

05/22/2024 14:45:43 GMT|ByJoaquin Monfort

Gold price retreats for the second consecutive day on the back of elevated interest-rate expectations.
Fed policymakers are expressing a reluctance to lower interest rates until more progress has been made on beating inflation.
Their views are echoed in other parts of the globe further weighing on the Gold price which is sensitive to interest rates.

Gold price (XAU/USD) trades lower by over a percent in the $2,380s on Wednesday after a shift in the outlook for interest rates – both in the US and globally – weighs on the precious metal.

Recent comments from US Federal Reserve (Fed) policymakers repeated the mantra that insufficient progress had been made in bringing inflation down to the Fed’s 2.0% target to warrant a lowering of interest rates.

Their views weighed on the Gold price which, as a non-yielding asset, tends to perform poorly when interest rates are high due to the increased opportunity cost of holding Gold.

Gold price pulls back ahead of Fed Minutes

Gold price might be further impacted when the Fed releases the FOMC Minutes from its latest policy meeting on Wednesday at 18:00 GMT.

If the meeting minutes reflect a shift to a more hawkish stance amongst policymakers, Gold is expected to continue retreating.

The recent Reserve Bank of Australia (RBA) meeting Minutes revealed that officials at the RBA had discussed the possibility of raising rates – a notable shift in stance from previous meetings.

Technical Analysis: Gold price edges lower towards trendline support

Gold price (XAU/USD) weakens and penetrates support from the green trendline, which reflects the short-term uptrend that began at the beginning of May.

The pair formed a Shooting Star Japanese candlestick pattern (shaded rectangle on the chart) on Monday, followed by a bearish close the following day, providing additional confirmation. The pattern is indicative of short-term weakness.

XAU/USD Daily Chart

If the pullback continues, Gold could fall down to the dark grey upward-sloping trendline in the $2,360s.

However, the precious metal’s short, medium and long-term trends are bullish, and given the old adage that “the trend is your friend”, the odds favor an eventual recovery after the correction.

A break above the new $2,450 all-time high would likely continue the rally to the next target at the psychologically significant $2,500 level.

Economic Indicator

FOMC Minutes

FOMC stands for The Federal Open Market Committee that organizes 8 meetings in a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy.

Why it matters to traders?

Minutes of the Federal Open Market Committee (FOMC) is usually published three weeks after the day of the policy decision. Investors look for clues regarding the policy outlook in this publication alongside the vote split. A bullish tone is likely to provide a boost to the greenback while a dovish stance is seen as USD-negative. It needs to be noted that the market reaction to FOMC Minutes could be delayed as news outlets don’t have access to the publication before the release, unlike the FOMC’s Policy Statement.

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