Subdued Trading as Traders Await Clarity on Fed‘s Monetary Policy
Gold prices experienced a slight decline on Tuesday, as the U.S. dollar remained robust, while market activity remained subdued. Traders are eagerly anticipating further indications regarding the U.S. Federal Reserve’s monetary policy direction, especially after the widely anticipated interest rate pause expected later this month.
As of 0740 GMT, spot gold showed a modest decrease of 0.1%, trading at $1,936.19 per ounce. Meanwhile, U.S. gold futures registered a 0.3% decline, reaching $1,961.80 per ounce, following a U.S. holiday on the previous day.
Harshal Barot, a senior consultant at Metals Focus, commented on the situation, stating, “Much remains to be seen if rate cuts in 2024 follow and to what extent.” He added that the possibility of U.S. interest rates remaining elevated for an extended period would limit the extent of gold price rallies.
If the U.S. economy indeed experiences a “soft landing,” there is the potential for gold to face further downside pressure. This could occur as some of the previously aggressive expectations for rate cuts in the second half of 2024 would likely be scaled back, Barot noted.
Recent economic data from the United States has supported the notion of a “soft landing,” as concerns about inflation and recession have somewhat abated. This has solidified expectations that the Federal Reserve may not need to raise interest rates further.
Gold, being a non-interest-bearing asset, tends to lose its appeal when interest rates rise.
Market participants are keenly awaiting comments from Fed officials throughout the week, ahead of the upcoming policy meeting on September 19-20. According to the CME FedWatch tool, traders currently assign a 93% probability that the Fed will leave rates unchanged at the forthcoming meeting. There is also approximately a 60% likelihood that rates will remain at their current levels for the remainder of the year.
NAB Commodities Research has expressed optimism about the potential for gold prices to rebound, particularly if there is a growing conviction that rate cuts in 2024 are on the horizon. The research firm predicts that prices could rise toward an average of $1,968 per ounce during the last quarter of this year.
In the broader precious metals market, spot silver experienced a decline of 1.6%, reaching $23.59 per ounce. Platinum also dipped 1.1%, settling at $943.28, while palladium eased by 0.7% to $1,213.36 per ounce.
