Gold Price in Holding Pattern as Fed Rate Cut Uncertainty Persists

Gold (XAU/USD) prices remain range-bound, hovering near chart support levels on Monday, as investors grapple with the uncertainty surrounding the Federal Reserve’s (Fed) interest rate policy. The precious metal has been consolidating since reaching its all-time high of $2,450 in May, with the lack of clear signals from the Fed regarding rate cuts limiting gold’s directionality.

Market Drivers: Fed’s Cautious Stance and Mixed Signals

  • Fed’s Data-Dependent Approach: Despite the recent decline in the US Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge, Fed officials remain hesitant to commit to a specific rate cut timeline.
  • Mixed Signals from Fed Speakers: While some officials acknowledge the progress in curbing inflation, others emphasize the need for more evidence of sustained disinflation before considering rate cuts, creating uncertainty in the market.
  • Market Expectations for Rate Cuts: Market-based indicators suggest a 63% probability of a rate cut in or before September, but this could change depending on the Fed’s communication and upcoming economic data.

Gold’s Potential Scenarios: A Win-Win Situation?

Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, believes that gold is in a “win-win” scenario. He argues that even if the Fed delays rate cuts, the resulting economic slowdown and increased risk aversion could boost demand for gold as a safe haven. Conversely, if the Fed does signal a rate cut, the weakening US Dollar could also support gold prices.

Technical Analysis: Bearish Pattern Invalidated, but Sideways Trend Prevails

Gold’s recent breakout above a key descending trendline has invalidated a bearish Head-and-Shoulders (H&S) pattern. However, the precious metal has since pulled back to retest the trendline as support, suggesting a potential sideways trend in the short to medium term.

Key levels to watch include:

  • Resistance: A break above $2,340 could trigger a rally towards the June 21st high of $2,369 and potentially the June 7th high of $2,388.
  • Support: The neckline of the invalidated H&S pattern at $2,279 remains a crucial support level. A break below this could lead to further declines towards $2,171 and $2,105.