In the early New York session on Tuesday, gold prices (XAG/USD) are demonstrating strength against the US Dollar (USD), driven by optimistic expectations that the Federal Reserve (Fed) will eventually ease interest rates. Despite this, the precious metal’s upside potential appears limited as Fed policymakers lean towards maintaining higher interest rates for an extended period to exert downward pressure on persistent inflation.
Investors are directing their attention towards non-yielding assets like gold, anticipating a shift in the Fed’s stance towards lowering interest rates. Presently, spot gold prices are showing a 0.23% increase, reaching $2,036.
The cautious approach of Fed policymakers towards interest rates involves a wait-and-watch strategy. They emphasize the elevated risks associated with premature rate cuts, asserting that delaying such actions might be more prudent. The Fed is anticipated to refrain from considering rate cuts until there is concrete evidence of inflation consistently falling towards the targeted 2%.
This week, the direction of the US Dollar will be influenced by the release of the United States core Personal Consumption Expenditure – Price Index (PCE) data scheduled for Thursday. Fed policymakers closely analyze this underlying inflation data before formulating statements on interest rates. The extent of change in the core PCE inflation data is poised to shape market expectations regarding potential rate cuts.
