Gold Backs Off prices dropped in European trade on Wednesday, marking the second consecutive loss and moving away from record highs due to profit-taking. The decline came as the dollar strengthened against major currencies, adding pressure on gold prices. Traders are now eagerly awaiting the Federal Reserve’s latest meeting minutes, which are expected to provide new insights into the timing of potential US rate cuts.
The Price Movement
Gold prices fell by 0.4% to $2410 an ounce on Wednesday, with session highs reaching $2426. This followed a 0.25% decline on Tuesday, breaking a three-day streak of gains and moving away from the recent record high of $2450.
Impact of a Stronger Dollar
Dollar Index Performance
The dollar index rose by 0.15% on Wednesday, marking its fifth consecutive session of gains against a basket of major currencies. A stronger dollar makes dollar-denominated gold futures more expensive for holders of other currencies, contributing to the decline in gold prices.
Fed Officials’ Remarks
The dollar’s gains were bolstered by bullish comments from Federal Reserve officials, which also pushed US 10-year Treasury yields higher. Fed official Christopher Waller indicated on Tuesday that he needs to see several months of favorable inflation data before supporting any policy easing measures.
US Rates and Market Expectations
Rate Cut Odds
Market expectations for a rate cut have been fluctuating. As of now, the odds of a 0.25% rate cut by the Fed in July stand at 18%, while the probability for September is at 61%. According to the Fedwatch tool, investors anticipate two 0.25% rate cuts this year.
Fed’s May Meeting Minutes
The Federal Reserve is set to release the minutes of its May meeting later today. During this meeting, the Fed maintained interest rates below 5.5% and expressed a cautious stance on cutting rates until there is more confidence that inflation is moving towards the 2% target. Fed Chair Jerome Powell emphasized that monetary policy is likely to remain restrictive for some time, although he does not expect the next policy move to be a rate hike.
Gold Outlook
RGO Futures’ Analysis
Analysts at RGO Futures believe that gold prices could rise towards $2500 an ounce in the short term. However, they caution that there is a risk of losing momentum, particularly if market conditions change or if the anticipated rate cuts are delayed.
SPDR Gold Trust Holdings
Gold holdings in the SPDR Gold Trust remained flat at 838.54 tonnes, the highest level since February 14. This stability suggests that investor interest in gold remains strong, despite the recent price fluctuations.
Conclusion
Gold prices have retreated from their historic highs, influenced by profit-taking and a stronger dollar. As traders await the release of the Federal Reserve’s meeting minutes, the market remains on edge, anticipating new insights into future rate cuts. Despite the current downturn, the outlook for gold remains cautiously optimistic, with potential for prices to climb towards $2500 an ounce in the near term.
FAQs
Why did gold prices fall recently?
Gold prices fell due to profit-taking and a stronger dollar, which made gold more expensive for international buyers. Bullish comments from Fed officials also contributed to the decline.
How does the dollar impact gold prices?
A stronger dollar makes dollar-denominated gold more expensive for holders of other currencies, which can lead to a decrease in demand and a drop in Gold Backs Off prices.
What are the current expectations for US interest rate cuts?
Market expectations indicate a low probability (18%) of a 0.25% rate cut in July and a higher probability (61%) for September. Investors anticipate two rate cuts by the end of the year.
What did the Fed’s May meeting minutes reveal?
The minutes from the Fed’s May meeting showed a cautious approach to cutting rates, with officials waiting for more evidence that inflation is moving towards the 2% target.
What is the outlook for gold prices?
Analysts believe Gold Backs Off prices could rise towards $2500 an ounce in the short term, although there is a risk of losing momentum if economic conditions change.