Gold prices (XAU/USD) eased to around $2,335 during the early Asian session on Monday, influenced by recent economic data suggesting persistent inflationary pressures in the United States. This data has raised doubts in the market about the likelihood of near-term interest rate cuts by the Federal Reserve (Fed), with investors closely eyeing the Fed’s upcoming interest rate decision scheduled for Wednesday.
The US Dollar Index (DXY), which measures the USD against a basket of currencies used in US trade, retreated to 106.00, while US Treasury bond yields edged lower, with the 10-year yield declining to 4.667%.
In economic news from Friday, both the headline and Core Personal Consumption Expenditures (PCE) Price Index for March met expectations, showing a 0.3% month-on-month increase. Annual headline inflation for March rose to 2.7% year-on-year from 2.5% in February, surpassing the anticipated 2.6%. Core PCE inflation also exceeded expectations, climbing to 2.8% year-on-year.
According to the CME FedWatch tool, futures markets are pricing in nearly a 60% probability of a Fed interest rate cut at the September meeting, slightly higher than before the latest data release. It is widely expected that the Fed will maintain its policy rate within the current range of 5.25%–5.5% during this week’s meeting and continue to signal a lack of urgency for rate cuts. This hawkish sentiment in the market could diminish the attractiveness of non-yielding assets like gold, placing downward pressure on gold prices.
In geopolitical news over the weekend, Hamas indicated it was reviewing a new cease-fire proposal from Israel for Gaza. Egypt has intensified its efforts to broker an agreement between Israel and Hamas to end the conflict and prevent an Israeli military incursion into southern Gaza. Traders in the gold market will monitor developments surrounding these geopolitical risks in the Middle East closely. Any escalation in tensions could increase demand for traditional safe-haven assets like gold.
