Gold Price Holds Ground Below $2,150 Amid Decreased Expectations for Fed Rate Cuts

Gold prices remain low for the third consecutive day, dropping to a level not seen in over a week. This decline is attributed to expectations that the Federal Reserve (Fed) will delay cutting interest rates due to persistent inflation concerns in the US. As a result, US Treasury bond yields remain high, bolstering the US Dollar (USD) and diverting investment away from gold, which does not yield interest.

Despite the expectation that the Fed might initiate rate cuts in June, uncertainty persists, preventing aggressive USD trading. Additionally, geopolitical tensions, such as the ongoing Russia-Ukraine conflict and conflicts in the Middle East, provide some support for gold as a safe-haven asset.

Traders are cautious and await further cues from the upcoming two-day FOMC monetary policy meeting scheduled for Wednesday, which will heavily influence USD dynamics and potentially provide new direction for gold prices.

Last week’s US data indicated a stubborn inflation trend, which may compel the Fed to maintain higher interest rates, further dampening gold prices. The University of Michigan’s preliminary survey revealed stable inflation expectations, while the US Consumer Sentiment Index slightly declined.

Geopolitical tensions persist, with Ukraine increasing drone strikes on Russian oil refineries and Israel moving forward with plans in Gaza’s Rafah enclave.

Gold price traders observe technical levels, with support expected around $2,145-2,144 and resistance near $2,175-2,176. Breaking these levels could signal further movement in either direction.


What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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