Gold Prices Stabilize as Fed’s Hawkish Stance and Yield Gains Persist

June 19, 2024

New Delhi, India

Gold Prices Analysis

Gold prices (XAU/USD) are consolidating near the upper end of a short-term trading range as the Federal Reserve’s (Fed) hawkish stance on interest rates continues to weigh on the market. Uncertainty about the timing of potential rate cuts is holding traders back from making fresh directional bets, resulting in subdued range-bound price action.

Market Overview

• Current Range: Gold prices are oscillating in a narrow band around $2,300.
• Fed Rate Cut Uncertainty: Traders are cautious as they await clearer signals on when the Fed might start cutting interest rates.
• US Retail Sales Impact: Weaker-than-expected US Retail Sales data has supported the gold price by undermining the USD.

Fed’s Hawkish Narrative

At the June policy meeting, the Fed adopted a more hawkish stance, forecasting only one rate cut this year. Despite this, markets are still anticipating two rate cuts in 2024 due to signs of easing inflation in the US. The softer US Retail Sales data released on Tuesday pointed to consumer exhaustion, increasing the likelihood of a rate cut in September and another in December.

Economic Data and Fed Commentary

• US Retail Sales: The Commerce Department reported a 0.1% increase in May, below the 0.2% forecast, indicating slowing economic activity.
• Inflation Data: Recent data suggests subsiding inflation, bolstering hopes for rate cuts later this year.
• Fed Officials’ Views:
  • John Williams: Encouraged by recent inflation data, expects further declines.
  • Thomas Barkin: Finds recent inflation data promising but remains cautious.
  • Susan Collins: Stresses that inflation is still high and will take time to reach the 2% target.
  • Adriana Kugler: Believes policy easing may be appropriate later this year if economic conditions improve.
  • Lorie Logan: Emphasizes that more progress is needed to confidently hit the 2% inflation target.
  • Alberto Musalem: Notes that the labor market remains tight and that it could take months or quarters for policies to bring inflation down to target levels.

Conclusion

Investors should closely monitor upcoming economic data and Fed statements for clues on the timing of potential rate cuts. The current market sentiment suggests that while gold prices may find some support from weaker US economic data, the overall hawkish stance of the Fed will likely keep prices capped in the near term.