- Gold weakens after several Federal Reserve officials expressed reluctance to cut interest rates yet.
- However, the market still sees a high probability of a cut in September.
- XAU/USD pulls back after an upside breakout invalidates the orthodox head-shoulder pattern.
He Gold (XAU/USD) drops to around $2,310 on Wednesday as investors mull comments from Federal Reserve (Fed) officials, who continue to show reluctance to cut interest rates amid persistently high inflation. The expectation that interest rates will remain high is negative for Gold, as it keeps the opportunity cost of holding the asset without a coupon yield high.
Gold drops sharply and steadily on hawkish Fed comments
Gold is down modestly on Wednesday after a drop of more than half a percentage point the previous day. Several Fed officials took the stand one after another and said they believe it is still too early to cut interest rates.
Fed Governor Lisa Cook said that “at some point, it will be appropriate to cut rates,” but added that keeping them at their current level was the right strategy at this time “to respond to the economic outlook.”
Fed Governor Michelle Bowman said on Tuesday that it was not yet appropriate to cut interest rates. Inflation data would need to be moving more sustainably toward the Fed’s 2.0% target before it was time to “taper down the policy rate.” At the same time, he added that baseline estimates indicated inflation was on track toward target as long as the Fed kept policy as is “for some time.”
On Monday, San Francisco Fed President Mary Daly said she did not believe the Fed should cut rates before it was more confident that inflation was headed toward 2.0%. However, she also warned against focusing too much on inflation to the detriment of the labor market. If unemployment continued to rise, the Fed might have to cut rates to support businesses and maintain employment, according to Reuters.
Market-based odds of a rate cut at (or before) the Fed’s September meeting have fallen overnight from 67% to 66%, according to the CME’s FedWatch tool, which calculates the odds using prices of Fed funds futures. Such a cut would be a bullish event for Gold.
Of key interest to Gold traders will be the US Personal Consumer Price Index (PCE) for May, due to be released on Friday, the Federal Reserve’s (Fed) preferred inflation gauge. A lower than expected result would increase the chances that the Fed will proceed with an early rate cut and support the price of Gold. The opposite would be the case if inflation rises.
Technical Analysis: Gold declines towards key support
Gold moves down towards key support and the neckline of a possible top pattern at $2,279 – a break below that level would signal a strong move lower.
XAU/USD Daily Chart
The XAU/USD pair has been forming a bearish Head and Shoulders (H&S) pattern for the past three months. However, the June 20 breakout has called the validity of the pattern into question. That said, a more complex top pattern is still possible that could prove bearish.
If so, then a break below the pattern’s neckline at $2,279 would provide confirmation of a reversal to the downside, with a conservative target at $2,171, and a second target at $2,105.
At the same time, it is also possible that Gold finds support and continues higher. Gold’s original breakout above the trendline and 50-day SMA was supposed to hit an initial, conservative target of $2,380 (June 7 high), and it’s still possible to hit that target despite the recoil.
However, it would require a break above $2,350 to confirm a move towards the June 7 high. A further break above that level could signal a continuation towards the May – and all-time – high at $2,450.
A break above that level would confirm a resumption of the broader uptrend.
There is a risk that the trend will now be sideways in both the short and medium term. In the long term, Gold remains in an upward trend.
Economic indicator
Personal consumption expenditure – price index (YoY)
Personal consumption expenditure published by the Bureau of Economic Analysis, Department of Commerce It is an estimate of the amount of money consumers spend in a month. It is a significant indicator of inflation. A result above expectations is bullish for the dollar, while a reading below consensus is bearish.
Next post: Fri Jun 28, 2024 12:30
Frequency: Monthly
Dear: 2.6%
Previous: 2.7%
Fountain: US Bureau of Economic Analysis
Source: Fx Street

I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.