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Gold dips on Fed comments

June 26, 2024

LONDON (June 26) Gold (XAU/USD) edges lower into the $2,310s on Wednesday as investors mull comments from Federal Reserve (Fed) officials, who continue to appear reluctant to cut interest rates amid stubbornly high inflation. The expectation that interest rates will remain elevated is negative for Gold as it keeps the opportunity cost of holding the non-coupon-yielding asset high. 

Gold steadily declines on hawkish Fedspeak

Gold ticks marginally lower on Wednesday following an over-half a percent decline on the previous day. Several Fed officials came up to the speakers’ stand one after another and said they think it is still too early to cut interest rates. 

Fed Governor Lisa Cook said that “at some point, it will be appropriate to cut rates,” but  added that maintaining them at their current level was the right strategy at the moment “to respond to the economic outlook.”

Fed Governor Michelle Bowman said on Tuesday that it was not yet appropriate to cut interest rates. Inflation data would have to be moving more sustainably towards the Fed’s 2.0% target before it was time to “gradually lower policy rate." At the same time, she added that baseline estimates indicated that inflation was on its way down toward the target as long as the Fed keeps policy as it is “for some time."

On Monday, San Francisco Fed President Mary Daly said she did not believe the Fed should cut rates before it was more confident that inflation was headed towards 2.0%. Yet she also cautioned not to focus too heavily on inflation to the detriment of the labor market. If unemployment continued to rise the Fed might have to cut rates to support businesses and maintain employment, according to Reuters.

The market-based probabilities of an interest-rate cut at (or before) the Fed’s September meeting have nudged lower overnight from 67% to 66%, according to the CME FedWatch tool, which calculates chances using Fed Funds futures prices. Such a cut would be a bullish event for Gold. 

Of key interest to Gold traders will be the US Personal Consumption Expenditures (PCE) Price Index for May out on Friday, the Federal Reserve’s (Fed) preferred inflation gauge. A lower-than-expected result would increase the chances of the Fed going ahead with an early rate cut and support Gold price. The opposite would be the case if inflation rises. 

FXStreet

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