Gold Dips as Fed’s Reluctance to Cut Rates Bolsters Dollar

Gold (XAU/USD) prices edged lower on Monday, trading around the $2,310 mark, weighed down by the prospect of sustained high US interest rates. The Federal Reserve (Fed) signaled reluctance to ease monetary policy in the near term, citing persistent inflation concerns, which in turn strengthens the US Dollar (USD) against which gold is priced.

Market Drivers: Interest Rate Uncertainty and Mixed Signals

  • Fed’s Cautious Stance: The Fed’s recent decision to revise down its projected rate cuts for 2024, along with Chair Powell’s emphasis on a data-dependent approach, has tempered expectations for an imminent policy easing, putting pressure on gold.
  • Mixed US Data: While the recent PPI report indicated easing inflationary pressures, the declining Michigan Consumer Sentiment Index points to a slowing economy, creating a mixed picture for gold’s outlook.
  • China’s Reduced Gold Purchases: The People’s Bank of China’s (PBoC) decision to halt gold purchases for the first time in 18 months added to the bearish sentiment, although strong consumer demand in China could potentially offset this in the long run.

Technical Analysis: Bearish Head-and-Shoulders Pattern Emerges

Gold’s price chart is forming a bearish Head-and-Shoulders (H&S) pattern, often indicative of a trend reversal. A decisive break below the pattern’s neckline at $2,279 could confirm the bearish signal, potentially triggering further declines towards $2,171 or even $2,106.

However, a break above the $2,345 level would invalidate the H&S pattern and suggest a continuation of the upward trend, targeting the previous peak at $2,450.