Gold does not shine and the price of the metal remains weak today. From Fed rate policy to geopolitics, what is impacting the commodity?
Where is the price of gold headed? Investors are looking for the answer above all in the path of the Fed’s interest rates.
On Monday, July 1, the price of gold struggled to gain significant ground and hovered in a narrow trading range below the $2,330 level during the start of the European session.
The market hesitancy stems partly from ambiguity over the Federal Reserve’s upcoming decisions on easing monetary policy.
Although last Friday’s headline US inflation data suggests potential rate cuts in September and December, recent comments from members of the Federal Open Market Committee (FOMC) appear to be leaning towards a more cautious approach, dampening hopes of immediate rate reductions.
In this context, in which the dollar could be pushed further upwards, the price of gold does not find a clear direction. What do analysts expect?
Gold price, how the Fed influences the metal
The gold futures are trading at $2,335, falling and the XAU/USD (spot gold) also drops to $2,326 two hours after the opening of the European session.
Market bets on the Fed rate cut in September and again in December rose Friday, after the Personal Consumption Expenditures Index showed inflation did not rise at all from April to May.
The PCE followed an unrevised 0.3% increase recorded in April data last month, while consumer spending increased moderately. According to the CME’s FedWatch tool, traders currently estimate a roughly 68% chance of a Fed rate cut in September, compared to 64% before the inflation data was released.
A loose monetary policy should push bullion, more attractive and profitable than the dollar if the cost of money falls (and with it returns and strength of the greenback).
However, sentiment towards Fed policy is very uncertain indeed. Richmond Fed President Thomas Barkin said utilities still have room to push prices higher.
San Francisco Fed President Mary Daly told CNBC that the cooling of inflation shows that monetary policy is working, but it is still too early to say when it will be appropriate to cut rates.
This, in turn, should prevent any significant appreciation of the yellow metal unyielding ahead of key US macroeconomic releases this week, including Friday’s NFP report.
Gold, not just rates. What is affecting the metal?
The persistent geopolitical tensions and the uncertainty over the final outcome of the early elections in France still give some support to the dollar as a safe haven asset, penalizing the price of gold.
Meanwhile, the growing odds of a Trump presidency have raised concerns about the imposition of aggressive tariffs, which could fuel inflation and trigger higher interest rates. This, in turn, pushes US Treasury yields to a multi-week high and should limit any significant upside for the yellow metal.
The complex interplay between rate expectations, geopolitical developments, and economic indicators will continue to dictate the pace of the price of gold in the coming days according to analysts.
Original article published on Money.it Italy 2024-07-01 11:16:59. Original title: Prezzo oro, le incognite Fed e geopolitica pesano sul metallo
