Gold prices (XAU/USD) experienced a sharp drop during Wednesday’s New York session, falling to approximately $2,340. This decline came after an attempted recovery to near $2,360 faltered. The precious metal’s downturn is attributed to Federal Reserve (Fed) policymakers reiterating their commitment to maintaining higher interest rates for an extended period.
Investor caution has heightened as attention shifts to the upcoming United States core Personal Consumption Expenditure (PCE) Price Index data for April, slated for release on Friday. This index, the Fed’s preferred inflation gauge, is projected to have grown steadily on both a monthly and annual basis, at rates of 0.3% and 2.8%, respectively.
The anticipated increase in underlying inflation suggests that interest rates are likely to remain elevated. This scenario is detrimental to gold prices, as the opportunity cost of holding non-yielding assets like gold rises. In contrast, it favors yields on interest-bearing assets and strengthens the US Dollar.
As of now, the US Dollar has risen to nearly 105.00, and 10-year US Treasury yields have reached a fresh three-week high of around 4.60%, driven by cautious market sentiment.
