The price of gold (XAU/USD) encountered selling pressure on Tuesday, halting the modest rebound seen in the previous session from the $2,145 zone, marking a one-week low. This downward movement comes in the wake of robust US inflation figures released last week, which have fueled speculations regarding the Federal Reserve’s (Fed) monetary policy stance.
The prevailing sentiment suggests that the Fed may adhere to its strategy of maintaining higher interest rates for an extended period, potentially adjusting its forward guidance to include two 25 basis points rate hikes in 2024, as opposed to the previously projected three hikes. This stance has bolstered US Treasury bond yields and propelled the US Dollar (USD) to nearly a two-week high. Consequently, the strength in the USD has weighed on the non-yielding yellow metal, eroding its attractiveness to investors.
However, market participants are still anticipating the initiation of a rate-cutting cycle by the Fed, possibly commencing as early as the June policy meeting. This anticipation, coupled with ongoing geopolitical tensions arising from the protracted Russia-Ukraine conflict and turmoil in the Middle East, may lend some support to the safe-haven appeal of gold and help mitigate its losses.
Traders are likely to exercise caution and await further guidance regarding the Fed’s rate-cut trajectory before committing to significant directional positions in XAU/USD. As such, all eyes are on the crucial Federal Open Market Committee (FOMC) decision scheduled for Wednesday, which is expected to influence USD demand and inject fresh momentum into the precious metal market.
