Gold prices fluctuated during Tuesday’s North American session, dropping to $2,418 after reaching an all-time high of $2,450. Investors turned cautious as the Greenback recovered some ground and Wall Street indices remained in the green, prompting a decline in the safe-haven status of gold. Meanwhile, hedge funds increased bullish bets on gold futures to a three-week high, offsetting losses in XAU/USD. Despite US Treasury yields declining and the Federal Reserve keeping interest rates on hold, gold prices faced headwinds due to a lack of strong economic data and lingering uncertainty.
Last week’s inflation data showed signs of easing underlying prices, leading traders to expect a resurgence of easing policies from the US central bank. The Federal Reserve officials, however, pushed back against the notion that inflation is moderating, stating that they are not in a rush to reduce interest rates. Fed Governor Christopher Waller emphasized the need for favorable inflation data over several months before considering rate cuts, while Vice-Chair Philip Jefferson and Cleveland Fed President Loretta Mester remain cautious about the risks of inflation. Data from the Chicago Board of Trade indicates that investors are anticipating 35 basis points of Fed easing by the end of the year.
Technical analysis shows that while gold’s uptrend is intact, a close below $2,407 could trigger a pullback, potentially forming a ‘dark cloud cover’ chart pattern. Momentum currently favors buyers, but a decline in the Relative Strength Index (RSI) could lead to further drops. Resistance levels for XAU/USD are set at $2,431 and $2,450, with support at $2,400 followed by lower levels at $2,332 and $2,303. The Fed’s monetary policy, primarily focused on achieving price stability and full employment through interest rate adjustments, plays a crucial role in shaping the US economy and influencing the value of the US Dollar.
The Federal Reserve conducts eight policy meetings a year, where the Federal Open Market Committee (FOMC) evaluates economic conditions and makes monetary policy decisions. In extreme scenarios, the Fed may resort to Quantitative Easing (QE), a non-standard policy measure that involves increasing the flow of credit during crises or low inflation periods. This policy was utilized during the Great Financial Crisis in 2008, weakening the US Dollar. Quantitative Tightening (QT) is the reverse process of QE, where the Fed reduces its bond purchases, potentially strengthening the US Dollar. Overall, the Fed’s decisions on interest rates and policy measures significantly impact the financial markets and play a pivotal role in the global economy.
