Gold Price Under Pressure as US Dollar Gains Traction on Fed Rate Hike Expectations
The price of gold faced continued selling pressure for the second consecutive day on Tuesday, dropping to a new daily low around the $1,931 region during the Asian session.
The price of GOLD faced continued selling pressure for the second consecutive day on Tuesday, dropping to a new daily low around the $1,931 region during the Asian session. Nevertheless, the XAU/USD managed to maintain its position above the three-and-a-half-week low reached last Friday.
The US Dollar (USD) found support from prospects of further policy tightening by the Federal Reserve (Fed), which contributed to the downward pressure on the gold price. Market participants remain convinced that the Fed will implement one more 25 basis point (bps) rate hike, potentially in September or November, based on the monthly employment data from the United States (US). Despite a slight disappointment in the headline Non-Farm Payrolls (NFP), solid wage growth and an unexpected decline in the unemployment rate indicated ongoing tightness in the labor market, boosting the odds of a soft landing for the US economy and supporting the Fed’s hawkish stance.
Additionally, remarks from Fed Governor Michele Bowman emphasized the likelihood of additional interest rate hikes to combat inflation. These statements, along with the supportive US Treasury bond yields, contributed to the USD’s strength and led to outflows from the non-yielding gold, further pressuring its price. Meanwhile, New York Fed President John Williams acknowledged the need for a restrictive stance for some time, but he did not rule out potential rate cuts in early 2024 depending on economic data. This cautious approach might limit aggressive USD bullish bets and help mitigate losses for the US Dollar-denominated gold price.
Traders are keeping an eye on fresh catalysts from the latest consumer inflation data from China and the US, set to be released on Wednesday and Thursday, respectively. These figures could influence the outlook on deflation and impact expectations for additional rate hikes by the Fed, potentially affecting the precious metal’s performance.
Given that consensus estimates anticipate a moderation in inflationary pressures, stronger-than-expected data could increase the likelihood of another Fed rate hike by year-end, exerting downward pressure on GOLD , traditionally seen as an inflation hedge. The mixed fundamental backdrop calls for caution when positioning for further movement in the gold price. The recent emergence of selling suggests that the downtrend experienced in the past three weeks is not yet over, indicating that the path of least resistance for XAU/USD remains to the downside.
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