Gold (XAU/USD) maintained a narrow trading range in the $2,320s on Wednesday amidst subdued market activity. With a lack of risk sentiment and low holiday trading volumes, volatility remained muted for the safe-haven asset.
The U.S. Dollar (USD), which typically exhibits a negative correlation with Gold, traded largely unchanged. Due to the Juneteenth day holiday, U.S. bond markets were closed, keeping the benchmark U.S. 10-year Treasury bond yield steady at 4.2270%, unchanged from Tuesday’s close as reported .
Gold prices saw a slight uptick on Tuesday following disappointing U.S. Retail Sales data. The weaker-than-expected retail data led to revised expectations of U.S. interest rate hikes, with markets now indicating a higher probability of a rate cut at the Federal Reserve’s September meeting. The CME FedWatch Tool, based on Fed Funds Futures, raised the likelihood from 50% to 60% post-data release.
However, despite market optimism reflected in futures, recent statements from Federal Reserve officials suggest a more cautious approach. At their June meeting, Fed projections for the Fed Funds Rate were revised upwards, signaling reduced expectations for rate cuts in 2024 due to persistent inflation pressures. This stance is generally negative for non-yielding assets like Gold, as it increases the cost of holding the precious metal.
Several Fed officials expressed their views on monetary policy following the recent inflation data. Boston Fed President Susan Collins cautioned against premature conclusions on inflation trends, while Fed Board member Adriana Kugler emphasized the gradual progress in inflation reduction. St. Louis Fed President Alberto Musalem indicated readiness to raise rates if inflation remains above target for extended periods.
Dallas Fed President Lorie Logan welcomed signs of inflation slowing but stressed the need for continued caution. Chicago Fed President Austan Goolsbee described the latest Consumer Price Index update as encouraging, suggesting potential further improvements in inflation readings ahead.
In conclusion, Gold remains influenced by evolving economic data and Federal Reserve policy signals, with market participants closely monitoring inflation trends for future trading cues.
