- Gold has been under selling pressure for the past two days, falling near $2323 an ounce today, Thursday, continuing its decline amid rising US Treasury yields and demand for the US dollar driven by hawkish comments from Fed officials.
- On Wednesday, Atlanta Fed President Bostic said the path to 2% inflation is not guaranteed and the range of price gains remains large.
- This came on top of recent comments from Minneapolis Fed President Kashkari, who said the Fed should hold off on cutting rates until there is a significant improvement in inflation and noted that the Fed has not ruled out raising rates if inflation fails to fall further.
Now, investors are awaiting the second estimate of US GDP figures due out later today, as well as the key US inflation report on Friday - the Fed's preferred inflation gauge - along with initial jobless claims for the week ended May 25, for clues about the economy and Fed policy expectations.
What is expected for gold prices in the coming days?
In this regard, “The gold market has suffered from more hawkish comments from Fed officials and better-than-expected US economic data, with market participants once again changing the timing of the Fed’s first interest rate cut,” UBS analyst Giovanni Stanovo said.
US Federal Reserve officials have indicated that it will likely take longer than previously expected for inflation to fall to 2%, minutes of the latest policy meeting last week showed. Moreover, federal Reserve Governor Christopher Waller said on Friday that it is possible that the key interest rate, which affects the effectiveness of monetary policy, will rise in the future after years of declines, but it is too early to say whether that will happen.
While gold is often considered an insurance against inflation, rising interest rates increase the opportunity cost of holding non-yielding assets. Concurrently, investors are awaiting the April reading of the Personal Consumption Expenditures Price Index, the US central bank's preferred measure of inflation, which is scheduled for release on Friday. Overall, traders currently expect a roughly 62% chance that the Fed will cut US interest rates in November, according to the CME fedwatch tool, opens a new tab, compared to a roughly 63% chance on Friday.
Stanovou of UBS said in a note: "We expect gold prices to remain volatile, with price setbacks shallow, targeting gold prices to test new highs later this year."
A recent factor affecting the gold market, the yield on the 10-year US Treasury rose to over 4.63% on Wednesday, its highest level since early May. It is putting sharp selling pressure on government bonds worldwide as a strong macroeconomic backdrop and concerns about stubborn inflation extended expectations of higher Fed rates. According to the economic calendar, consumer confidence, compiled by the Conference Board, rose, while housing prices accelerated unexpectedly, and inflation expectations remained at high levels. Also, Minneapolis Fed President Neel Kashkari said more positive inflation data would be needed before considering rate cuts this year, noting that raising rates again is not out of the question.
As a result, recent auctions of two-, five- and seven-year bonds have underperformed, increasing pressure on Treasuries in the secondary market. Markets now expect the Fed to hold the funds rate in place in September, and to cut rates only once this year.
According to stock trading platforms, US stock markets closed sharply lower on Wednesday as rising bond yields continued to dampen risk appetite following disappointing bond auctions. The S&P 500 and Nasdaq fell 0.7% and 0.6%, respectively, while the Dow Jones fell 400 points. Overall, investors were concerned about rising US bond yields after a failed government debt auction, reflecting concerns that the Fed will keep rates higher for longer, especially after US consumer confidence rose unexpectedly in May.
On the corporate level, American Airlines shares fell by 13.5% after the company lowered its sales expectations. Furthermore, UnitedHealth stock fell 3.7% due to management's commentary on its medical business. In contrast, Nvidia shares extended their rise by 0.8%, and cumulative post-earnings rise of approximately 20%. Salesforce is scheduled to announce its quarterly results after the close.
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Gold Price Forecast and Analysis Today:
Based on the performance on the daily chart, the gold price moved to the support level of $2300 per ounce. Falling below this level might prompt reconsideration of buying gold again, as global geopolitical tensions continue to rise, along with record purchases of gold by central banks worldwide. Technically, we still prefer to buy gold at every downward level. Conversely, over the same time period, movement towards the resistance levels of $2355 and $2370 will be important for the bulls' strong control of the trend.
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