In the early New York session on Wednesday, the Gold price (XAU/USD) seeks a potential rebound as market dynamics are influenced by uncertainty surrounding the timing of Federal Reserve rate cuts. Gold, being a non-yielding asset, finds support and limitation in the anticipation of rate cuts by the Federal Reserve. The central bank is exercising caution in unwinding its restrictive monetary policy stance due to the current strength in labor demand and optimistic household spending.
Despite expectations of rate cuts, the US Dollar Index (DXY), which typically exhibits a negative correlation with Gold price, has experienced a decline. This contrasts with the conventional notion that a lack of interest rate cuts would weigh on gold. The diminished anticipation of a rate cut in March, and even reduced expectations for May, is attributed to the Federal Reserve’s cautious approach, awaiting concrete evidence that inflation will sustainably slow to the 2% target.
Minneapolis Federal Reserve President Neel Kashkari emphasizes the need for more months of positive inflation data to instill confidence in the Federal Reserve regarding the return of inflation to the 2% target. Kashkari speculates that two or three rate cuts may be appropriate later in the year.
Looking ahead, the speeches from Fed policymakers, including Richmond Federal Reserve Bank’s Thomas Barkin and Federal Reserve Governor Michelle Bowman, will be closely monitored as they provide insights into the central bank’s stance on interest rates. The evolving narrative around rate cuts will likely continue to shape the trajectory of the Gold price in the ongoing market landscape.
