The gold price has risen close to 1% after rebounding from a two-week low of $2,325. Strong economic data from the United States last week has dampened hopes for Federal Reserve easing, putting pressure on gold prices. Fed officials have hinted at a longer timeline to achieve the 2% inflation target, affecting the appeal of gold as a hedge against inflation. The upcoming US PCE Price Index is expected to show a core increase of 2.8% YoY and headline growth of 0.3% MoM.
Gold prices have been boosted by a decline in US Treasury yields and a weaker US Dollar, with the XAU/USD trading at $2,354 on Monday, gaining close to 1%. The US 10-year Treasury note yield is at 4.461% and has lost one-and-a-half basis points, putting downward pressure on the Greenback. Despite solid economic data from the US, such as increased business activity highlighted by last week’s S&P Global PMIs, investors remain uncertain about the economic outlook due to a worse-than-expected US Durable Goods Orders report released on Friday.
Technical analysis shows that the gold price uptrend remains intact, with buyers targeting the $2,400 mark and the year-to-date high of $2,450. On the other hand, bears need to push prices below the May 8 low of $2,303 and the May 3 cycle low of $2,277 to gain control. Meanwhile, Fed funds rate futures estimate just 25 basis points of interest rate cuts in 2024.
The Federal Reserve shapes monetary policy in the US, with the primary goals of achieving price stability and fostering full employment. The Fed adjusts interest rates as its main tool to achieve these goals. In situations where inflation is above the 2% target, the Fed raises interest rates, leading to a stronger US Dollar. Conversely, when inflation falls below 2%, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve holds eight policy meetings a year to assess economic conditions and make monetary policy decisions. The Federal Open Market Committee is attended by twelve Fed officials who analyze the economic situation and make decisions. In extreme situations, the Fed may resort to Quantitative Easing (QE) as a non-standard policy measure to stimulate the economy and increase credit flow. QE usually weakens the US Dollar. Conversely, Quantitative Tightening (QT) is the reverse process of QE, involving the Fed stopping bond purchases to strengthen the US Dollar.
