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Gold prices stagnate as traders await clarity on Fed timeline

Published 19/06/2024, 03:48 pm
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Investing.com - The price of gold (XAU/USD) appears to be stabilizing near the top end of its short-term trading range as uncertainty surrounding the Federal Reserve's rate-cutting timeline keeps traders from committing to new directional positions.

In its June policy meeting, the US central bank signaled a more hawkish stance and projected only one rate cut this year. However, market sentiment still leans toward the possibility of two rate cuts in 2024, given signs of easing inflation in the US.

This sentiment was further boosted by Tuesday's weaker-than-expected US retail sales data, which suggested consumer fatigue and raised expectations for a rate cut as early as September, followed by another in December.

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Expectations that the Fed will soon commence its rate-cutting cycle have led to a decrease in US Treasury bond yields overnight. This has put pressure on the US Dollar, providing support for gold, which does not yield interest. However, the overall bullish sentiment in global equity markets is preventing traders from making aggressive bullish bets on the safe-haven asset, likely limiting any significant upside.

Last week, the Federal Reserve revised its projection for the number of rate cuts in 2024 down to one from three in March. However, recent US macroeconomic data continues to keep hopes alive for an earlier rate cut in September. This is due in part to softer US consumer and producer prices data suggesting subsiding inflation, and disappointing US Retail Sales figures.

Meanwhile, Fed officials have given mixed signals about the economic outlook. New York Fed President John Williams expressed optimism about recent inflation data, while Boston Fed President Susan Collins noted that inflation remains stubbornly high. Fed Governor Adriana Kugler stated that economic conditions are moving in the right direction, suggesting that it might be appropriate to begin easing policy later this year if the economy continues to evolve as expected.

The defensive stance of US Dollar bulls, coupled with the overnight drop in US Treasury bond yields, is providing some support to gold. However, in the absence of relevant economic data, this support is likely to be limited.

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