The price of gold fell by about 0.6%, losing all positions earned yesterday. The pressure on the precious metal was exerted by the strengthening of the US currency and the growth of US bond yields. Investors are also adjusting their positions ahead of the publication of US inflation data, which may affect the timing of the Fed's monetary policy easing.
The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.10% to 104.72, while the yield on 10-year US bonds increased by 2 basis points, to 4,562% (the highest value since May 9).
Now the focus of investors' attention will shift to Friday's data on the Fed's preferred inflation indicator. Economists expect the core personal consumption expenditures (PCE) price index to rise 0.2% m/m in April. This would mark the weakest monthly gain in four months. On an annualized basis, core PCE is expected to rise 2.8%, the same as in March. If Friday's data coincides with forecasts, it may prompt markets to increase the chances of a September Fed rate cut. Another important report of the week will be the publication of the second estimate of US GDP for the 1st quarter of 2024, scheduled for May 30.
“A softer core PCE release would make the job easier for gold to reclaim the $2,400 level, given the possible rate-cut timing implications,” said Tim Waterer, chief market analyst at KCM Trade.
According to the CME FedWatch Tool, markets see a 10.2% probability of a 25 basis point rate cut at the Fed meeting in July, a 45.8% probability of a rate cut in September, and a 57.7% probability of monetary policy easing in November, with traders pricing in 34 basis points of cuts this year compared with 150 basis points of easing priced in at the start of 2024. While gold is used as a hedge against inflation, rate hikes raise the opportunity cost of holding non-yielding bullion.