Gold prices propped up by Fed rate outlook

Gold prices extended gains on Tuesday, rising to $2,320 per ounce. If gold prices rise, resistance may be encountered near $2,390 per ounce, while if gold prices decline, support may be encountered near $2,280 per ounce. 

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%. 

The uncertainty around the US Fed rate outlook is causing volatility in gold prices. Fed policymakers have expressed 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. 

Renewed Fed rate cut expectations pushed US bond yields down and propped up gold prices on Tuesday ahead of Wednesday’s FOMC meeting. Market odds of a rate cut at Wednesday’s policy meeting are almost zero and traders will focus mostly on the Fed’s forward guidance. Odds of a Fed rate cut in September are currently around 50% and traders await the release of the Fed’s dot plot for hints into the central bank’s rate outlook.

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 gained strength on Tuesday ahead of Wednesday’s FOMC meeting and the dollar index rose above 105.3. US treasury yields on the other hand dipped, with the US 10-year bond yield yielding 4.41%.

Gold prices have experienced a meteoric rise recently and are trading in overbought territory. Geopolitical tensions 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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