Rania Gule
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.
