- Gold price hovers near fresh highs around $2,350 as the US Dollar remains sideways.
- US yields rally as traders pare Fed rate cut expectations.
- US inflation could guide market expectations for Fed rate cuts ahead.
Gold price (XAU/USD) falls slightly from record fresh all-time highs near $2,350 in Monday's early New York session. The near-term appeal remains extremely strong global central bankers purchase gold heavily. The rally in the precious metal remains unabated even though US Treasury yields increased after the robust United States Nonfarm Payrolls report for March shifted expectations for the Federal Reserve (Fed) pivoting to rate cuts in the second half of this year.
10-year US Treasury yields rise to four-month highs near 4.45%. Generally, higher bond yields dampen Gold’s appeal as they increase the opportunity cost of holding investment in the latter. However, the case has not held up in the last few weeks.
Fed policymakers don’t see rate cuts as appropriate as robust labor market data could halt the progress in reducing inflation to the 2% target.
Even one Fed policymaker sees no need for rate cuts this year if price pressures persist. Last week, Minneapolis Fed Bank President Neel Kashkari said rate cuts won’t be required this year if inflation stalls. Kashkari, who is currently not a voting member, warned: “The Fed needs to keep interest rates higher in the range of 5.25%-5.50% if inflation remains stronger than hoped”. He added that “if that still does not work, further rate increases are not off the table, but they are also not a likely scenario given what we know right now," Reuters reports.
Daily digest market movers: Gold price exhibits strength while US Dollar turns subdued
- Gold price trades close to all-time highs near $2,350, boosted by global central banks' robust purchase of gold.
- The US Dollar failed to catch the bid even though strong United States labor market data for March dents speculation for the Federal Reserve (Fed) to begin reducing interest rates, which are currently expected from June.
- The US Nonfarm Payrolls (NFP) report showed that the labor market recorded an increase of 303K fresh payrolls, significantly better than the 200K expected and the prior reading of 270K. The Unemployment Rate fell to 3.8% from the consensus and the prior reading of 3.9%. Robust labor demand is generally followed by strong wage growth as employers are forced to offer higher pay due to a shortage of workers. Higher wage growth boosts consumer spending, which keeps inflation stubbornly higher.
- The labor market data showed that the Fed does not need to pivot to rate cuts sooner. The CME FedWatch tool shows that traders are pricing in 48% for lowering borrowing costs in June, down significantly from 58% a week ago.
- After the strong US NFP data, Fed Governor Michelle Bowman said, “We are still not yet at the point where it is appropriate to lower the policy rate, and I continue to see a number of upside risks to inflation,” Reuters reported. Bowman remains confident that inflation will soften ahead with labor demand remaining strong. She added that if that happens, "it will eventually become appropriate to lower the federal funds rate gradually to prevent monetary policy from becoming overly restrictive.”
- Going forward, investors will focus on the US Consumer Price Index (CPI) data for March, which will be published on Wednesday. The inflation data will provide more cues about when the Fed could start reducing its interest rates. Strong price pressures could keep hopes of rate cuts for June off the table while soft figures could prompt speculation for the contrary.
Technical Analysis: Gold price trades around $2,350
Gold price continues to add gains even though momentum oscillators turn extremely overbought – a situation when upside potential gets limited. The precious metal rallies to $2,350 but is expected to turn sideways as investors are expected to make fresh positions after the release of the US inflation data.
On the downside, March 21 high at $2,223 will be a major support area for the Gold price bulls.
The 14-period Relative Strength Index (RSI) reaches 84.00, which indicates that bullish momentum is still active. However, overbought signals have emerged.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD bounces off lows, back near 1.1330
EUR/USD meets daily support around the 1.1300 neighbourhood, managing to regain pace and revisit the 1.1330 region. Sentiment turned after President Trump proposed a “straight 50% tariff” on European imports, undermining the pair’s bullish momentum.
GBP/USD eases from tops, revisits the 1.3500 zone
GBP/USD benefits from broad US Dollar weakness, climbing to its highest level since February 2022 past 1.3500 at the end of the week. UK retail sales data surprised to the upside in April, lending extra wings to the quid.
Gold keeps the bullish tone near $3,350
Gold extends its weekly advance, trading around $3,350 per troy ounce on Friday. The rally in XAU/USD is driven by broad-based weakness in the Greenback, particulalry after President Trump’s threat to impose 50% tariffs on European imports.
Apple stock sinks below $200 after Trump threatens more tariffs Premium
Trump grows irate at Apple's move into India. President claims Apple must produce US-sold iPhone in US or face a 25% tariff. US equity futures slip more than 1% in Friday premarket after Trump threatens the EU with a 50% tariff.
Ripple Price Prediction: Whale accumulation sparks hope as rising exchange reserves signal caution
XRP sustains mid-week recovery as XRP/BTC flashes golden cross for the first time since 2017. Large volume holders increase XRP exposure, indicating rising demand and investor confidence.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.