- Gold prices experience a marginal decline amidst firm US yields, influenced by reduced expectations of a Fed rate cut in June.
- Meanwhile, the US Dollar stays relatively muted, buoyed by improved risk sentiment driven by positive data from China.
- Market focus centers on the Federal Reserve’s upcoming decision and guidance regarding interest rates throughout the week.
In Monday’s European session, the price of gold (XAU/USD) remains subdued. Diminishing expectations of a Federal Reserve (Fed) interest rate cut in the upcoming June policy meeting have led to strengthened yields on interest-bearing assets. Notably, 10-year US Treasury yields have risen to 4.31%, up by 0.16%. This uptick in US bond yields elevates the opportunity cost of holding non-yielding assets like gold, consequently exerting downward pressure on its price.
Meanwhile, the US Dollar Index (DXY) sees a slight decline to 103.40, driven by an improved risk appetite. The allure of safe-haven assets diminishes as strong recovery in Chinese Retail Sales and Industrial Production data for February indicates an uptick in domestic demand. This shift away from safe havens further weighs on the price of gold.
Looking ahead, this week’s trajectory for gold will be heavily influenced by the Federal Reserve’s interest rate decision, scheduled for Wednesday. Market consensus expects the Fed to maintain interest rates within the range of 5.25%-5.50%. However, the focal point will be on the interest rate guidance, particularly through the release of the “dot plot,” which presents interest rate projections from Fed officials across different timeframes.
Daily digest market movers: Gold price falls slightly amid caution ahead of Fed meeting
- Gold price hovers around $2,150, exhibiting a subdued stance as investors await pivotal interest rate decisions from central banks this week. The Federal Reserve’s monetary policy determination will notably dictate the short-term trajectory for gold.
- According to the CME FedWatch tool, the likelihood of a steady decision at the March meeting is high. Market observers will closely scrutinize the dot plot, reflecting policymakers’ collective expectations for interest rates and the latest economic outlook. Investors seek insights into potential rate cut indications from the Fed.
- December’s dot plot revealed policymakers’ reluctance to further increase interest rates, forecasting three rate cuts this year. However, the Consumer Price Index (CPI) and related inflation metrics for the initial months of 2024 have not aligned with this outlook, as Fed officials await sustained declines in price pressures to bolster confidence in inflation returning to the 2% target. Consequently, projections for rate cuts by Fed policymakers may be adjusted downwards.
- Looking ahead, market sentiment tilts towards the June policy meeting for potential key borrowing rate reductions by the Fed. Yet, prospects for a June rate cut have diminished notably due to stubborn consumer and producer price indices in February. The probability of a rate cut in June, as indicated by the CME FedWatch tool, stands at 57%, down from the previous 72% recorded before the release of inflation data.
- Later in the week, investor attention will be drawn to the preliminary S&P Global Manufacturing PMI for March. Forecasts anticipate a decline to 51.7 from February’s 52.2, adding to market dynamics influencing gold prices.
Technical Analysis: Gold price remains below $2,160
Gold’s price has recently dipped to a fresh weekly low, hovering around $2,145. As the disparity between different indicators diminishes, the precious metal appears poised to extend its decline towards the 20-day Exponential Moving Average (EMA) positioned at $2,097. Following a pronounced discrepancy, assets often undergo a mean-reversion process, entailing either a price or time correction.
To the downside, significant support levels are identified at the December 4 high near $2,145 and the December 28 high at $2,088.
The 14-Relative Strength Index (RSI) has retreated from its peak around 84.50, though upward momentum remains evident.
