Gold prices slumped by more than 0.91% on Wednesday as the US Dollar strengthened, buoyed by elevated US Treasury yields. The decline comes ahead of the imminent release of the Personal Consumption Expenditures (PCE) Price Index report on Friday, which is expected to be a pivotal event for market sentiment.
Investors have begun to adjust their expectations for Federal Reserve (Fed) policy, pricing in reduced prospects for monetary easing. This shift has further bolstered the US Dollar, contributing to downward pressure on gold prices. Currently, the XAU/USD pair is trading at $2,297 after reaching a daily peak of $2,323.
The US Dollar Index (DXY) surged to a new monthly high of 106.13, driven by the significant increase in US Treasury yields. The yield on the 10-year Treasury note climbed by five and a half basis points (bps) to 4.304%, reflecting investor confidence in the US economy’s resilience.
Federal Reserve Governor Michele Bowman emphasized on Tuesday that monetary policy would remain unchanged for the foreseeable future. However, she indicated that a rate hike might be necessary if progress on inflation stalls or reverses.
Market focus remains squarely on the upcoming release of the May PCE Price Index, considered the Fed’s preferred measure of inflation. Expectations are for a slight decrease in the year-on-year PCE to 2.6% from 2.7%, while the core PCE, excluding volatile food and energy prices, is anticipated to dip to 2.6% from 2.8%.
In addition to the PCE report, investors are awaiting the final reading of the Gross Domestic Product (GDP) for Q1 2024, along with data on Durable Goods Orders and Initial Jobless Claims. These releases will provide further insights into the health of the US economy and potentially impact market expectations regarding future Fed policy decisions.
As the week progresses, continued volatility in gold prices is expected as traders react to incoming economic data and developments in US Treasury yields, influencing the broader outlook for precious metals markets.
