The price of gold (XAU) experienced a modest decline of 0.13% on Tuesday, as the US dollar strengthened in anticipation of the Federal Reserve’s policy rate decision scheduled for today.
According to Ryan McKay, the commodity strategist at TD Securities, the recent swift movement in gold prices has led to a period of consolidation as investors await clarity on the Fed‘s stance. He noted, “Gold is seeing some exhaustion to the upside as the positions moved swiftly over the past week or 2, and now it’s taking a bit of a breather as the Fed pricing comes off a bit.”
The rally in gold prices over the past week, starting from February 28, has prompted some gold bulls to close their long positions amid diminishing expectations of a 25-basis point rate cut by the Fed in June.
Despite the prevailing uncertainties, analysts caution against overly optimistic expectations for higher gold prices. XAU/USD is already hovering near all-time highs, and recent US macroeconomic data has not provided compelling reasons for a rate cut. However, the potential for a sharp sell-off remains limited due to continued demand for safe-haven assets and the expectation of global monetary policy easing in 2024.
During the Asian and early European trading sessions, XAUUSD remained largely unchanged. However, market participants are eagerly awaiting the Fed’s rate decision, scheduled for 6:00 pm UTC today. Alongside the rate decision, the Fed will release its FOMC Economic Projections report, including the highly anticipated ‘dot plot’, which outlines each Fed member’s projections for future interest rates.
Investors are closely monitoring the ‘dot plot’ as it provides insights into the Fed’s monetary policy outlook. In the previous report, a majority of Fed officials projected lower interest rates by end-2024, leading to expectations of a more aggressive rate-cutting cycle. The release of this information caused XAUUSD to rally significantly.
Analysts believe that the reaction of the gold price will depend largely on the tone of the FOMC Economic Projections report. A dovish outlook with indications of further rate cuts could push gold prices towards $2,200. Conversely, a hawkish tone suggesting fewer rate cuts is likely to result in a decline in XAUUSD, potentially towards $2,125.
Spot gold is biased towards breaking a falling trendline and rising into the $2,175–$2,182 range, highlighting the uncertainty surrounding gold’s near-term trajectory.
