Gold Hovers Near $2,315 Amid Diverging Fed Rate Outlooks

Gold prices rise to around $2,315 as the US dollar weakens, driven by market expectations of two Fed rate cuts in 2024 despite the Fed's more conservative outlook.

Key Insights

  • Gold prices rise to around $2,315 as the US dollar weakens, driven by market expectations of two Fed rate cuts in 2024 despite the Fed’s more conservative outlook.
  • Recent US inflation data and PMI reports have strengthened rate cut speculation.
  • Gold has been consolidating between $2,277 and $2,450 for over two months.

LONDON (MarketsXplora) – Gold prices inched up on Monday, hovering near $2,315 per ounce in European trading, as the U.S. dollar retreated amid growing expectations of two Federal Reserve rate cuts this year.

The dollar index, which measures the greenback against a basket of six major currencies, slipped to 105.60, providing support for the yellow metal, which becomes more attractive to holders of other currencies when the dollar weakens.

“The market is increasingly pricing in a more dovish Fed stance, despite the central bank’s own projections,” said Stephen Ethan, analyst at MarketsXplora. “This divergence is creating an interesting dynamic for gold.”

Expectations for Fed rate cuts have strengthened following softer-than-expected U.S. inflation data in May and signs of moderating cost pressures in the June S&P Global Purchasing Managers Index (PMI) report.

The CME FedWatch tool now indicates a 66% probability of a rate cut in September, with further reductions anticipated in November or December. This contrasts with the Fed’s latest dot plot, which suggests only one cut this year.

“There’s a clear disconnect between market expectations and Fed guidance,” noted Ethan. “The Fed wants to see sustained inflation decline before pivoting, which could lead to volatility in gold prices in the coming months.”

From a technical perspective, gold has been consolidating between $2,277 and $2,450 for over two months. The 50-day Exponential Moving Average at $2,318 is providing support, while the Relative Strength Index oscillates between 40 and 60, indicating market indecision.

“A break below $2,277 could see gold testing the March 21 high of $2,223,” Ethan said. “Conversely, a move above $2,450 could push gold into uncharted territory.”

 

 

 

Editing by Stephen Ethan

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