Gold price fails to attract buyers as traders await US CPI and Fed decision
Most recent article: Gold struggles on reduced Fed rate-cut bets, China buying pause
- Gold price edges lower on Wednesday and seems to have snapped a two-day winning streak.
- Reduced bets for a September Fed rate cut continue to underpin the USD and cap the upside for Gold.
- Investors will keep an eye on the US CPI inflation report and FOMC decision for a fresh directional impetus.
Gold price (XAU/USD) struggles to capitalize on its modest gains registered over the past two days and trades with a negative bias during the early European session on Wednesday. The downtick, however, lacks follow-through as traders keenly await the release of the latest consumer inflation figures from the United States (US) and the outcome of the highly-anticipated Federal Open Market Committee (FOMC) meeting later this Wednesday. This should provide fresh cues about the timing when the Federal Reserve (Fed) will start cutting interest rates, which will determine the near-term trajectory for the non-yielding yellow metal.
Heading into the key data/event risks, investors have been scaling back their bets for an imminent interest rate cut by the Federal Reserve (Fed) in September amid a strong US labor market and sticky inflation. This assists the US Dollar (USD) to stand tall near a one-month peak and turns out to be a key factor acting as a headwind for the Gold price. The downside, however, seems cushioned in the wake of renewed political uncertainty in Europe and persistent geopolitical tensions. This warrants some caution for bearish traders and before positioning for an extension of the recent pullback from the all-time peak.
Daily Digest Market Movers: Gold price struggles to gain ground amid Fed rate jitters, stronger USD
- Reduced bets for an imminent interest rate cut by the Federal Reserve in September, along with China's decision to pause buying, turn out to be key factors capping the upside for the Gold price.
- The current market pricing indicates that the Fed could cut rates by only 25 basis points this year, either at the November or December policy meeting, which continues to underpin the US Dollar.
- The USD Index (DXY), which tracks the Greenback against a basket of currencies, stands tall near its highest level since May 9 and contributes to keeping a lid on the Dollar-denominated commodity.
- Traders, however, now seem reluctant and prefer to wait for more cues about the likely timing when the Fed will start cutting interest rates before placing fresh directional bets around the XAU/USD.
- Hence, the focus will remain glued to Wednesday's release of the latest US consumer inflation figures and the crucial FOMC monetary policy decision, due to be announced later during the US session.
- Stronger jobs and wage data released on Friday raised concerns that inflation may remain sticky amid a still resilient US economy, which, in turn, will reaffirm higher for longer interest rates narrative.
- The headline US Consumer Price Index is expected to ease to 0.1% in May from the 0.3% previous, and the yearly rate is seen unchanged at 3.4%, still well above the Fed's annualized target of 2%.
- Moreover, Core CPI is anticipated to hold steady at 0.3% during the reported month and edge lower to the 3.5% YoY rate from 3.6% in April, reaffirming stubbornly high inflationary pressure.
- Meanwhile, the US central bank is expected to leave interest rates unchanged and release updated economic projections, including the so-called "dot plot", which will influence the precious metal.
Technical Analysis: Gold price seems vulnerable below 50-day SMA, $2,285 support holds the key
From a technical perspective, the $2,300 round figure now seems to act as immediate support ahead of the $2,285 horizontal zone. Against the backdrop of Friday's breakdown below the 50-day Simple Moving Average (SMA), some follow-through selling below the latter will be seen as a fresh trigger for bearish traders. Given that oscillators on the daily chart are holding in the negative territory, the Gold price might then accelerate the slide towards the next relevant support near the $2,254-2,253 region. The downward trajectory could extend further towards the $2,225-2,220 area en route to the $2,200 mark.
On the flip side, any strength beyond the $2,325 hurdle is more likely to attract fresh sellers and remain capped near the 50-day SMA support breakpoint, currently pegged near the $2,345 region. This is followed by the $2,360-2,362 supply zone, which, if cleared decisively, should allow the Gold price to retest last week’s swing high, around the $2,387-2,388 area and reclaim the $2,400 mark. A sustained strength beyond the latter will negate any near-term negative bias and pave the way for a further appreciating move in the near term.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the strongest against the .
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 1.25% | 0.21% | 0.50% | 0.39% | 1.34% | 0.42% | 0.79% | |
| EUR | -1.27% | -1.06% | -0.76% | -0.87% | 0.12% | -0.82% | -0.44% | |
| GBP | -0.20% | 1.05% | 0.28% | 0.18% | 1.16% | 0.22% | 0.61% | |
| CAD | -0.49% | 0.77% | -0.28% | -0.10% | 0.91% | -0.05% | 0.34% | |
| AUD | -0.39% | 0.86% | -0.19% | 0.09% | 0.99% | 0.04% | 0.42% | |
| JPY | -1.35% | -0.12% | -1.17% | -0.88% | -0.99% | -0.95% | -0.57% | |
| NZD | -0.43% | 0.83% | -0.22% | 0.07% | -0.04% | 0.93% | 0.38% | |
| CHF | -0.81% | 0.45% | -0.60% | -0.31% | -0.43% | 0.57% | -0.38% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
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.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
