Gold prices declined for the third consecutive day yesterday, starting today’s trading at $2331.40, following economic data from the United States that spurred a rise in U.S. Treasury yields and supported an increase in the U.S. dollar.
The Federal Reserve’s hopes for a near-term interest rate cut were dashed, as investors now expect only 27 basis points of easing by the end of 2024, based on recent data showing a stubborn rise in inflation.
This data strengthened the U.S. Dollar Index, which rose by 0.18% and climbed back above 105.00. Additionally, the minutes from the Federal Reserve meeting on Wednesday revealed that some officials were ready to raise interest rates if necessary to control inflation, exerting significant downward pressure on non-yielding gold.
Gold prices had been supported by international central bank purchases, which increased due to Western sanctions on Russia following its invasion of Ukraine.
In my opinion, this data was a primary reason for the sharp drop in gold prices from their all-time high on Monday, currently breaking a major trendline on the gold price chart. If this trendline is decisively broken, it could signal the end of the recent gold rally.
I believe gold prices may recover some of their losses today, Friday, despite the strong U.S. dollar. However, the upside for gold may be limited amid fading hopes and expectations of a rate cut by the Federal Reserve in September. Nonetheless, demand for safe-haven assets amid rising geopolitical tensions in the Middle East could lift gold prices in the near term.
Further signals might come today as Federal Reserve member Waller speaks. Hawkish statements from the Federal Reserve could significantly impact gold prices. It is worth noting that higher interest rates exert downward pressure on gold prices by increasing the opportunity cost of holding non-yielding assets. Additionally, the U.S. durable goods orders and the Michigan Consumer Sentiment Index are due to be released.
Atlanta Federal Reserve President Raphael Bostic stated that he still sees upward inflationary pressure, adding that the Federal Reserve might need to be more patient to avoid stimulating the economy.
Moreover, a key reason for the recent sharp rise in gold prices was the private sector in China importing 543 tons of gold in the first quarter of 2024, with the People’s Bank of China (PBoC) adding another 189 tons to its reserves during the same period, significantly boosting gold prices.
