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- Gold fell 0.59%, weighed by a recovery in the US dollar and rising Treasury yields.
- The gold metal was under pressure due to hawkish comments from Federal Reserve Governor Michael Bowman.
- The Fed’s Lisa Cook takes a neutral stance and expects a sharp decline in inflation next year.
- The US Conference Board reports declining consumer optimism, with expectations about future income and business conditions diminishing.
gold price It fell after hitting a weekly high of $2,334 and fell as the dollar saw a rebound supported by a slight rise in US Treasury yields, driven by Federal Reserve (Federal Reserve) Governor Michael Bowman’s hawkish statements. The XAU/USD pair is trading at $2,319, down 0.59%.
Bowman stressed that monetary policy should remain steady “for some time” and may be enough to reduce inflation. It has shrugged off interest rate cuts this year and stated it is willing to raise them Rates “The progress in inflation should be halted or even reversed.”
More recently, her colleague Lisa Cook took a more neutral stance, saying inflation was likely to fall “sharply” next year and adding that it would be necessary to ease policy to keep the Fed’s dual mandate balanced.
Regarding economic data, the US Conference Board revealed that consumers have become less optimistic. According to the survey, consumers’ opinions about the current situation have improved; However, “their expectations for both future income and working conditions weakened, impacting the overall expectations index.”
Meanwhile, traders are awaiting the release of the Fed’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index. If the data is lower than the previous reading and estimates, it will reignite hopes for interest rate cuts for next year.
Daily summary of market drivers: Gold price continues its losses thanks to the strength of the US dollar
- The US Dollar Index (DXY), which measures the value of the US currency against a basket of six other currencies, rose 0.13% to 105.61. Meanwhile, the yield on 10-year US Treasury bonds settled at 4.242%.
- On Monday, San Francisco Fed President Mary Daly sounded cautious, saying: “At this point, inflation is not the only risk we face,” expressing concern about the labor market.
- The Conference Board (CB) revealed that consumer confidence in June was 100.4, beating expectations, but missing May’s high of 101.3.
- The headline PCE rate is expected to fall from 2.7% to 2.6% in annual readings. The underlying growth rate is expected to decline from 2.8% to 2.6%.
- According to the CME FedWatch tool, the odds of a 25 basis point Fed rate cut are 59.5%, down from 61.1% last Monday.
- The December 2024 federal funds rate futures contract suggests the Fed will ease policy by just 36 basis points at the end of the year.
Technical Analysis: Gold price fell after testing the head and shoulders neckline near $2,330
Gold price remains bearishly biased after forming an “all-around bearish” chart pattern on Friday. This also confirms the validity of the head and shoulders chart pattern, meaning that further decline is expected for the non-yielding metal.
The next support for XAU/USD will be $2,300. Once cleared, XAU/USD will fall to $2,277, the low of May 3, followed by the high of $2,222 on March 21. There are more losses below, as sellers eye the head and shoulders chart pattern target of $2,170 to $2,160.
Conversely, if gold reclaims the $2,350 area, it will expose additional key resistance levels such as the June 7 cycle high at $2,387, before challenging the $2,400 figure.
Federal Reserve Bank 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 annually, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC meeting is attended by twelve Fed officials – the seven members of the Board of Governors, the head of the New York Fed, and four of the remaining eleven Regional Reserve Bank presidents, who serve one-year terms on a rotating basis. .
In extreme cases, the Fed may resort to a policy called quantitative easing (QE). Quantitative easing is the process by which the Federal Reserve 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. Quantitative easing usually weakens the US dollar.
Quantitative tightening (QT) is the reverse process of quantitative easing, where the Fed stops purchasing bonds from financial institutions and does not reinvest capital from bonds it holds outstanding, to purchase new bonds. This is usually positive for the value of the US dollar.
