- Gold price starts week on back foot as high US yields dent appetite for the non-yielding metal.
- Fed officials signal only one rate cut in 2024 via Minneapolis Fed’s Neel Kashkari.
- Upcoming US economic data releases, including Retail Sales and Industrial Production, to influence Gold price.
- Precious metals traders await US Retail Sales and Industrial Production on June 18.
Gold prices retreated on Monday due to rising US Treasury bond yields after Federal Reserve (Fed) officials decided to keep rates unchanged and revised their expectations on rate cuts from three to one later in the year. Therefore, the XAU/USD trades at $2,317, down 0.63%, after retreating from the daily high of $2,332.
The golden metal is on the defensive as US Treasury bond yields advance after Fed officials remained hawkish. Despite that, the Greenback failed to gain traction and remains one of the laggards in the FX space.
Over the weekend, the Minneapolis Fed’s Neel Kashkari discussed monetary policy, saying that “it’s a reasonable prediction” that the Fed will ease policy by just 25 basis points (bps) in 2024. This would keep US bond yields high, making it less appealing to hold bullion as the fed funds rate remains lofty.
Earlier, Philadelphia Fed President Patrick Harker said that if the economy evolves as expected, one rate cut in 2024 is expected. He said the policy is restrictive and positioned to bring inflation to 2%.
Gold traders will watch the release of Retail Sales, Industrial Production, Initial Jobless Claims, and the S&P Global Purchasing Managers Index (PMI) figures.
Data from the Chicago Board of Trade (CBOT) shows traders expect 35 bps of easing during the year via December’s 2024 fed funds rate contract.
News that the People’s Bank of China has paused its 18-month bullion buying spree has weighed on the precious metal. PBOC holdings held steady at 72.80 million troy ounces of Gold in May.
Daily digest market movers: Gold price flops on higher US yields
- Rising US Treasury yields remained high, capping Gold’s advance. The US 10-year T-yield is up almost six bps to 4.281%.
- US Dollar Index (DXY) decreased by 0.18% to 105.34, putting a lid on Gold price.
- Despite US CPI report showing disinflation process continuing, Fed Chair Jerome Powell commented that they remain “less confident” about the progress on inflation.
Technical analysis: Gold price sellers regain control as prices are headed toward $2,300
Gold price is neutral to downwardly biased as the Head-and-Shoulders chart pattern remains intact, hinting that the golden metal could dip below the $2,200 mark. Momentum shows that sellers are gathering steam with the Relative Strength Index (RSI) diving further into bearish territory, opening the door for further losses.
If XAU/USD drops below $2,300, the first support would be the May 3 low of $2,277, followed by the March 21 high of $2,222. Further losses lie beneath, as sellers would eye the Head-and-Shoulders chart pattern objective from $2,170 to $2,160.
Otherwise, if Gold extends its gains past the June 7 cycle high of $2,387, it will be ready to test the $2,400 figure.
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.
