On Monday, gold prices faced a decline driven by the increase in US Treasury bond yields following the Federal Reserve’s decision to maintain interest rates unchanged and revise its expected rate cuts from three to one later in the year. As a result, XAU/USD traded at $2,317, marking a 0.63% decrease after pulling back from its peak of $2,332 earlier in the day.
The precious metal finds itself on the defensive amidst the advance in US Treasury bond yields, spurred by the Fed‘s persistent hawkish stance. Despite this, the US Dollar showed weakness and remained among the underperformers in the foreign exchange market.
Over the weekend, Neel Kashkari from the Minneapolis Fed commented on monetary policy, suggesting it is likely the Fed will implement a modest 25 basis points (bps) rate cut in 2024. This expectation supports higher US bond yields, making gold less attractive as bullion, particularly since the fed funds rate remains relatively high.
Philadelphia Fed President Patrick Harker also contributed to the sentiment, indicating an anticipated single rate cut for 2024 if economic conditions evolve as expected. He emphasized the current policy’s restrictive nature, aimed at achieving a 2% inflation target.
In the upcoming sessions, gold traders will closely monitor key economic indicators including Retail Sales, Industrial Production, Initial Jobless Claims, and the S&P Global Purchasing Managers Index (PMI). These releases will provide further insights into economic health and potential impacts on gold prices.
According to data from the Chicago Board of Trade (CBOT), market participants anticipate a total easing of 35 bps by the end of 2024 based on the December fed funds rate contract.
Additionally, news that the People’s Bank of China (PBOC) paused its 18-month gold buying streak has contributed to downward pressure on the precious metal. PBOC gold holdings remained steady at 72.80 million troy ounces in May, highlighting a stabilization in Chinese central bank policy towards gold acquisitions.
