Gold prices retreat after FOMC minutes

Gold prices hit a fresh all-time high of $2,450 per ounce on Monday, but pared gains later in the week dropping to $2,380 per ounce on Wednesday. If gold prices rise, resistance may be encountered again at the all-time high of $2,450 per ounce, while if gold prices decline, support may be encountered near $2,330 per ounce. 

Gold prices have experienced a meteoric rise recently and are trading in overbought territory. Market expectations of Fed rate cuts are fluctuating strongly, causing volatility in gold prices. 

Gold prices are affected by central banks’ interest rates. A restrictive monetary policy hinders economic growth lowering the global economic outlook and putting pressure on gold prices. The US Federal Reserve kept interest rates unchanged at its latest policy meeting, within a target range of 5.25% to 5.50%. 

Renewed rate cut expectations boosted gold prices since the release of the US inflation report last week. Inflationary pressures in the US are easing, which may allow the US Federal Reserve to start cutting interest rates by September. 

Gold prices gained strength on Monday, rising to an all-time high amid uncertainty on the Fed rate outlook. Hawkish Fedspeak, however, put pressure on gold prices later this week. Odds of rate cuts are becoming more moderate, putting pressure on gold prices, as policymakers state that they do not intend to start reducing interest rates until there is more evidence of disinflation. The uncertainty around the US Fed rate outlook is causing volatility in gold prices.

The minutes of the latest FOMC meeting were released on Wednesday and confirmed that Fed officials consider that inflationary pressures in the US remain high. Fed policymakers felt that the progress of disinflation in the first quarter of the year was disappointing and that interest rates would need to remain at high levels for longer for inflation to cool sufficiently.

Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar edged higher on Wednesday, and the index rose above the 104.8 level. US treasury yields also inched higher providing support for the dollar, with the US 10-year bond yielding approximately 4.43%.  

China announced stimulus measures to aid its ailing economy last week. Reports of “historic” steps by China to stabilize its property sector boosted gold prices since China is one of the world’s largest markets for gold. 

Geopolitical tensions also raise the appeal of safe-haven assets boosting gold prices. Concerns that the crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets keeping gold prices high. 

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Written by:
Myrsini Giannouli

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