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- Gold is falling from its daily highs, under pressure from rising US Treasury yields.
- US PCE index for May meets expectations, fuels hope for 2024 Fed rate cuts.
- The yield on the 10-year US Treasury note reached 4.339%, the highest level since June 12; the US dollar index was at 105.80, down 0.08%.
Gold prices fell on Friday after an inflation report showed progress in reducing inflation and raised hopes that Federal Reserve (Federal Reserve) will cut interest rates Rates In 2024. Although the gold metal jumped to a four-day high of $2,339, it retreated somewhat, with the XAU/USD pair trading at $2,324, down 0.12%.
Bullion prices fluctuated after the US Personal Consumption Expenditures (PCE) price index report for May was released, which was in line with estimates and painted an upbeat picture. Prospects For American consumers who have been hurt by higher prices.
Initially, the XAU/USD pair rose to a four-day high, but as traders digested the data, US Treasury yields rose and gold fell.
The yield on the 10-year US Treasury note advanced five and a half basis points, to 4.339%, the highest level since June 12. However, the dollar failed to follow suit but recovered from reaching its daily lows, with… US dollar index (DXY) is hovering around 105.80, down 0.08%.
Other data showed that US consumer sentiment improved slightly from the preliminary reading for June, which was lower than the May report.
Some Fed officials expressed the news, adopting a cautious approach. Richmond Fed President Thomas Barkin did not offer any hints about lowering interest rates, but commented that monetary policy is showing signs of “lagging,” meaning the economy will eventually slow.
His colleague Mary Daly of San Francisco said inflation is slowing, monetary policy is working, and inflation is expected to reach the Fed’s target by the end of 2025.
Daily summary of market drivers: Gold prices rise, benefiting from the weakness of the US dollar
- The US CPI for May fell 0.3% from April, to 0% on a monthly basis, as expected. The core CPI rose 0.1% month-on-month, which was in line with estimates but lower than the previous reading of 0.3%.
- The final reading of the US consumer confidence index for June was 68.2, down from 69.1 in May but an improvement from the preliminary reading of 65.8. Inflation expectations remained steady at 3% in both the short and long term.
- According to the CME FedWatch tool, the odds of a 25 basis point Fed rate cut in September are 69%, up from 64% before the US PCE release.
- Federal Reserve interest rate contracts for December 2024 suggest the Fed will ease policy by just 35 basis points by year-end.
Technical Analysis: Gold Price Drops After Testing Head and Shoulders Neckline
Gold remains on the defensive after a head and shoulders pattern appeared on the chart, suggesting that bullion could decline. Momentum shows that neither buyers nor sellers are in control, but the Relative Strength Index (RSI) remains bearish.
If XAU/USD breaks below $2,300, the next stop will be the May 3 low at $2,277, followed by the March 21 high at $2,222. Further losses lie below, as sellers eye the head and shoulders chart pattern target of $2,170 to $2,160.
Conversely, if gold regains the $2,350 level, it will expose additional key resistance levels such as the June 7 session high of $2,387, before challenging the $2,400 level.
Federal Reserve Questions and Answers
Monetary policy in the United States is shaped by the Federal Reserve Bank (Fed). The Federal Reserve has two missions: achieving price stability and promoting full employment. The primary tool for achieving these goals is adjusting interest rates. When prices rise too quickly and inflation is above the Fed’s 2% target, it raises interest rates, which increases borrowing costs throughout the economy. This causes the US dollar (USD) to strengthen because it makes the United States a more attractive place for international investors to park their money. When inflation falls below 2% or when the unemployment rate is very high, the Fed may lower interest rates to encourage borrowing, which affects the dollar.
The Federal Reserve (Fed) holds eight policy meetings each year, at which the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. Twelve Fed officials attend the FOMC meeting—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 Fed presidents, who serve one-year terms on a rotating basis.
In extreme cases, the Fed may resort to a policy called quantitative easing (QE). QE is the process by which the Fed dramatically increases the flow of credit into a stuck financial system. It is a non-standard policy measure used during crises or when inflation is very low. It was the Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE typically weakens the U.S. dollar.
Quantitative tightening is the reverse process of quantitative easing, where the Fed stops buying bonds from financial institutions and does not reinvest the principal from the maturing bonds it holds to buy new bonds. This is usually positive for the value of the US dollar.
