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Gold Falls as Rumors of a Fed Rate Cut Grow After US PCE Data

Leon Kramer

ByLeon Kramer

Jun 29, 2024
Gold Falls as Rumors of a Fed Rate Cut Grow After US PCE Data

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  • Gold prices declined from earlier highs, which were influenced by increased US Treasury yields.
  • The US PCE Index for May has met expectations, giving rise to optimism for potential Federal Reserve rate reductions in 2024.
  • The US 10-year yield has reached 4.339%, marking its highest level since June 12. Meanwhile, the DXY stands at 105.80, experiencing a slight decline of 0.08%.

Gold prices declined during Friday’s session following an inflation report that indicated progress in the disinflationary process, fueling optimism for potential interest rate cuts by the Federal Reserve (Fed) in 2024. Despite reaching a peak of $2,339, the price of the precious metal experienced a slight decline, with XAU/USD trading at $2,324, representing a 0.12% decrease.

The prices of bullion fluctuated following the release of the US Personal Consumption Expenditures (PCE) Price Index report for May. The report, which matched expectations, provided a positive outlook for American consumers, who rising prices have impacted.

At first, XAU/USD soared to a peak not seen in four days. However, as traders processed the information, US Treasury yields rose, and Gold experienced a decline.

The yield on the US 10-year Treasury note is increasing by five and a half basis points, reaching 4.339%, the highest level since June 12. However, the Greenback has yet to manage to mimic this behavior and bounce back from its daily lows. The US Dollar Index (DXY) is currently hovering around 105.80, experiencing a slight decline of 0.08%.

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Additional data indicated that there was a slight improvement in American consumer sentiment when compared to the initial reading in June, which was lower than the report in May.

A few Federal Reserve officials made statements expressing a prudent stance. Richmond’s Federal Reserve President, Thomas Barkin, refrained from giving any indications about potential interest rate cuts. However, he did mention that the current monetary policy is falling behind, suggesting that the economy may eventually experience a slowdown.

According to Mary Daly, a colleague based in San Francisco, inflation is gradually decreasing, indicating that the measures taken by monetary policy are proving effective. It is anticipated that inflation will reach the target set by the Federal Reserve by the end of 2025.

Gold Price Rises, Profiting From the Weak US Dollar

  • The US Personal Consumption Expenditures (PCE) for May showed a decrease of 0.3% compared to April’s figures, with a month-on-month change of 0%, which is in line with expectations. The Core PCE rose by 0.1% on a monthly basis, which is in line with expectations but lower than the previous figure of 0.3%.
  • The final reading of US Consumer Sentiment for June came in at 68.2, showing a slight decrease from May’s 69.1. However, it is worth noting that this final reading is an improvement compared to the preliminary reading of 65.8. Inflation expectations remained unchanged at 3% for both the short and long term.
  • Based on the CME FedWatch Tool, the likelihood of a 25-basis-point reduction in the Fed rate in September has increased to 69%, compared to the previous estimate of 64% prior to the release of US PCE data.
  • The December 2024 fed funds rate futures contract suggests that the Federal Reserve is expected to make a modest 35 basis point adjustment towards the end of the year, indicating a potential easing of policy.

Following the Testing of the Head-And-Shoulders Neckline, the Price of Gold Falls

Gold continues to face pressure as a Head-and-Shoulders chart pattern emerges, suggesting that the price of bullion may decline. The momentum indicates that neither the buyers nor the sellers have the upper hand, while the Relative Strength Index (RSI) continues to lean toward the bearish side.

If the XAU/USD falls below $2,300, it would reach the May 3 low of $2,277 and then drop further to the March 21 high of $2,222. Additional declines are anticipated as sellers set their sights on the target range of $2,170 to $2,160, as indicated by the Head-and-Shoulders chart pattern.

On the other hand, if Gold manages to surpass $2,350, it will encounter further significant resistance levels, such as the June 7 cycle high of $2,387, before potentially reaching the $2,400 mark.

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Leon Kramer

Leon Kramer

Leon Kramer, a renowned financial author, enlightens Main Forex News readers with his deep understanding of currency markets. His years in global finance, combined with an intuitive grasp of trends, delivers insightful, up-to-the-minute foreign exchange analysis.

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