- Summary:
- In the absence of geopolitical pressure, gold price has cracked under hawkish Fed policy, despite signs of easing US inflation.
Gold prices snapped a three-day winning streak on Thursday as the markets reacted to Fed interest rate decision. Spot gold prices were down by 0.30 percent in the European trading session, as it traded at 2,318 per ounce. The commodity was up by 0.9 percent in the futures market, and traded at $2,333 per ounce at the time of writing, according to data from COMEX.
The US dollar is likely to maintain a modest strength against gold in the near term, as investors balance the implications of a hawkish Fed policy versus a declining inflation. US Consumer Price Index data released hours before the Fed announcement on Wednesday showed that headline inflation declined on a yearly basis from 3.4 percent in April to 3.3 percent in May. That figure was 0.1 percent lower than the forecast figure, raising the prospects of a rate cut in September.
Also, the Fed’s dot plot will also come into play. FOMC officials revised upwards their median Fed Funds Rate from 4.6 to 5.1 percent in the last quarter of the year, signaling that we are likely to see one rate cut in 2024.
Gold prices could also be impacted by China’s decision to pause its 18-month buying spree. The move has reduced the demand-side fuel for gold price and will likely be reflected in the markets in the coming weeks if the trend continues in June. That said, yields on US treasuries have declined significantly in recent days, easing the pressure on non-yielding gold. As of this writing, benchmark 10-year treasury bonds are at 4.312 percent, marginally higher than its position before the Fed announcement.
Looking ahead, traders will get cues from Initial Jobless Claims data set for release later on Thursday. This will provide perspective into the US jobs market after May’s better-than-expected NFP figures. Also, the US Producer Price Index (PPI) will shed light on the inflation trajectory, potentially injecting new volatility into the market.
Technical analysis
The momentum on gold prices currently signals that the sellers are in control, with the pivot mark likely to be at 2,311.41. The downside will likely prevail if resistance remains at that mark, and the momentum could find the first support at 2,303.70. Extended control by the sellers will break the support, and potentially send the price lower to test 2,295. Alternatively, a move above 2,311.41 will favour control by the buyers, who are likely to meet the next resistance at 2,317.55. If they breach that mark, they will not only invalidate the downside narrative, but they could also build the momentum to move to 2,325.61
