The price of gold (XAU/USD) continues its sideways movement during Wednesday’s trading session, hovering near $2154, slightly above the lowest level in a week.
Strong consumer and producer inflation figures in the United States released last week have raised possibilities of the Federal Reserve delaying interest rate cuts.
These expectations support the rise in US Treasury yields, bolstering the US dollar and exerting downward pressure on the yield-less yellow metal.
The strong bullish sentiment in global stock markets seems to diminish demand for gold as a haven. However, investors appear hesitant to establish strong positions amidst ongoing geopolitical risks and ahead of the much-awaited Federal Open Market Committee policy decision.
Investors will be seeking signals about the path of interest rate cuts by the Federal Reserve, which will play a key role in influencing the dynamics of the US dollar in the short term and provide a new directional momentum for gold prices.
While last week’s strong US inflation figures forced investors to scale back expectations for a June rate cut and remain supportive of elevated US Treasury yields, which in turn support the strength of the dollar, current market prices indicate less than a 50% chance that the Federal Reserve will execute its first rate cut in June. From my perspective, it is very possible that the Fed’s interest rate expectations for 2024 could turn from three cuts to two, which were seven at the beginning of the year.
This will cautiously reassess the Fed’s decision and lead to high volatility in the markets.
I believe this will act as a short-to-medium-term barrier to gold’s upward momentum, especially with the S&P 500 index hitting a new record high, weakening investors’ inclination towards safe-haven assets despite ongoing geopolitical tensions.
Therefore, traders prefer to wait for the outcome of today’s much-awaited Federal Open Market Committee policy meeting to get signals about the path of future interest rate cuts before determining positions for the next phase of gold price movement.
The Federal Reserve is expected to keep interest rates at their highest historical levels, although market focus will be on “Powell’s subsequent conference” for evidence about the number and timing of interest rate cuts this year, which will affect the precious metal.
In my opinion, the market will be keenly interested in Federal Reserve Chairman Jerome Powell’s press conference for signals about the timing and frequency of interest rate cuts throughout the year, especially after Fed officials stated they want to see inflation ease for several months as evidence that price growth will return to the 2% target. However, inflation data for the first two months of 2024 indicated that price pressures remain firm and the US economy remains highly resilient.
