The price of gold (XAU/USD) hovers near $2,325 during the early Asian trading hours on Monday. Speculation that U.S. interest rates will remain elevated, with the Federal Reserve (Fed) officials predicting a single rate cut this year, has broadly strengthened the U.S. dollar. However, the risk aversion stemming from political uncertainty in Europe may bolster safe-haven flows, limiting the downside for the precious metal.
On Friday, Cleveland Fed President Loretta Mester emphasized the need for positive inflation data, indicating that achieving the Fed’s 2.0% inflation target may take longer than anticipated. Similarly, Minneapolis Fed President Neel Kashkari remarked on Sunday that it is “reasonable” to expect the central bank to wait until December to cut interest rates. Kashkari also noted that the Fed is well-positioned to gather more data before making decisions. These hawkish comments from Fed officials have impacted non-yielding assets like gold, making it more expensive for overseas buyers.
Adding to the economic backdrop, consumer sentiment in the U.S. fell to a seven-month low in June, according to the preliminary Michigan Consumer Sentiment Index report released on Friday. The index dropped 3.5 points to 65.6 in June from May’s final reading of 69.1, missing the estimated 72.0. Additionally, the one-year inflation expectation remained steady at 3.3%, while the five-year inflation outlook increased to 3.1% from 3%.
Conversely, the downside for gold might be curtailed by political concerns in the Eurozone. French President Emmanuel Macron has called for early parliamentary elections following a defeat to the right-wing National Rally in the European vote. Macron expressed on Sunday that the economic programs proposed by two extremist blocks in the parliament are unrealistic, warning that France is facing a critical moment with significant economic challenges. Any negative developments related to the Eurozone or France’s political issues could lend support to safe-haven assets like gold.
