Gold prices (XAU/USD) have attracted bids near $2,315 during Monday’s American session as the US Dollar (USD) weakened amid firm speculation that the Federal Reserve (Fed) will deliver two rate cuts this year. The US Dollar Index (DXY), which tracks the Greenback against six major currencies, fell to 105.60 as expectations for Fed rate cuts strengthened amidst easing inflationary pressures in the United States.
The US Consumer Price Index (CPI) report indicated that price pressures decelerated more than expected in May. Additionally, the preliminary S&P Global Purchasing Managers Index (PMI) report for June suggested moderate cooling in cost growth. The report noted, “Selling price inflation cooled to a five-month low in June, with the rate of increase in the services sector among the lowest seen in the past four years, and a six-month low in manufacturing.”
According to the CME FedWatch tool, the central bank is expected to begin easing policy at the September meeting, with further rate cuts anticipated in November or December. The 30-day Federal Funds futures pricing data show a 66% probability of a rate cut in September.
In the early New York session, Chicago Fed Bank President Austan Goolsbee commented that a slowdown in inflation would pave the way for policy easing. Goolsbee expressed optimism about further improvements in inflation data, suggesting that the Fed could gain more confidence in inflation returning to the 2% target.
However, the gold price may face pressure as US bond yields have rebounded. Fed policymakers, according to the dot plot chart from the June FOMC economic projections, expect only one rate cut this year, contrary to market expectations. Officials have emphasized the need to see sustained declines in inflation before initiating the policy normalization process. The 10-year US Treasury yields have bounced back to 4.27%, increasing the opportunity cost of holding non-yielding assets like gold.
In summary, while gold prices have benefited from a weaker US Dollar and speculation of upcoming Fed rate cuts, higher US bond yields and cautious Fed expectations could limit further gains.
