Gold (XAU/USD) dipped by a quarter of a percent on Tuesday, following a rejection at the key support-turned-resistance level of $2,315 late on Monday. The decline is largely attributed to higher interest rate expectations in the US, which have increased the opportunity cost of holding the non-yielding precious metal.
Recent better-than-expected US jobs data released on Friday indicated persistent inflationary pressures. This development has dampened the likelihood of an interest rate cut by the Federal Reserve (Fed) in September, maintaining the elevated interest rates that make gold less appealing to investors.
The robust wage and employment figures from the US Nonfarm Payrolls (NFP) report have led to a reevaluation of interest rate expectations. The market’s anticipation of a rate cut in September has decreased from 67% to just over 50%, based on the CME FedWatch tool, which derives its estimates from 30-day US Fed Fund Futures pricing data. The current probability now stands at approximately 54%.
Despite the bearish pressure on gold from US interest rate expectations, the global interest rate environment remains more favorable for the precious metal. The Bank of Canada (BoC) recently cut its overnight rate by 0.25% to 4.75%, and the European Central Bank (ECB) followed suit. Additionally, lower inflation data in Switzerland has fueled speculation that the Swiss National Bank (SNB) might also reduce interest rates at its June 20 meeting, following an initial cut in March.
Gold traders are now looking ahead to further insights from the Federal Reserve’s June meeting, concluding on Wednesday, as well as the US Consumer Price Index (CPI) data for May, also due on the same day. These events are expected to provide clearer direction for gold prices in the near term.
