Resistance at $2,300 despite difficult recovery
Also read: Gold in a complicated fight. For what ?
THE gold price (XAU/USD) are hovering around $2,300 during Thursday’s Asian session, struggling to recover after a nearly two-week slide.
The Fed and interest rates: a weight for gold
The firmer position of the Federal Reserve (Fed), posted at the end of the June meeting, weighs heavily on the non-remunerative yellow metal. Fed officials expect just one interest rate cut by the end of the year, supporting U.S. bond yields and creating a major headwind for gold.
Inflation, geopolitical tensions and market expectations
Despite signs of falling inflationary pressures in the United States, expectations of a rate cut in September by the Fed remain present. However, these expectations didn’t really help the US dollar (USD) benefit from its strong advance, hitting a nearly two-month high the day before. The softer tone in stock markets, coupled with ongoing geopolitical tensions and political uncertainty, is supporting safe-haven gold prices. Traders remain cautious ahead of the release of key US macroeconomic data, particularly the Personal Consumption Expenditures (PCE) Price Index due on Friday.
Impact of US economic indicators
The Fed’s narrative of high interest rates for an extended duration continues to bolster U.S. bond yields and the strong dollar, weakening the unprofitable gold price. On Wednesday, a government report revealed that new home sales saw the biggest decline since September 2022, plunging 11.3% in May to 619K, the lowest level since November. Despite this, dollar bulls remained unmoved, underscoring market confidence in the Fed’s stance.
“Dollar bulls are holding strong despite the slowing economy and easing inflationary pressures,” noted a market analyst.
The Fed’s projection of a single rate cut in 2024 contrasts with market pricing, which anticipates a greater likelihood of a rate cut in September and two 25 basis point cuts by the end of the ‘year. This uncertainty over the timing and number of Fed rate cuts this year limits further dollar appreciation and supports XAU/USD amid continued geopolitical tensions.
Outlook: key data releases to come
As traders prepare for the upcoming US presidential debate and the release of the PCE Price Index on Friday, US macroeconomic data on Thursday, including the final print of first quarter GDP, durable goods orders, Weekly initial unemployment claims and pending home sales, could provide a boost to gold prices.
In conclusion, although the Fed’s tough stance and robust US bond yields challenge gold’s rally, easing inflationary pressures and geopolitical uncertainties provide some support. The market remains focused on upcoming economic data to gauge the potential direction of gold prices.
