Albeit another sequential drop of inflationary pressures close to the Federal Reserve’s 2% target, policymakers maintained their restrictive monetary policy stance intact and vowed to proceed with caution, shying away from making promises for upcoming rate reductions. In this gold report we aim to shed light on the catalysts driving the precious metal’s price, assess its future outlook and conclude with a technical analysis.
FOMC sees only one rate cut in 2024
Yesterday, the Federal Reserve chose to keep its key refinancing rate unchanged at the 5.5% level for the 7th consecutive session, in line with expectations, as the committee judged that the current policy regime has not yet fulfilled its goals, albeit indirectly restricting demand with its cautious stance and kept inflationary pressures somewhat impotent.
The interesting aspect of yesterday’s decision and possibly the most important, was the contents of the FOMC’s summary of economic projections, where the renewed dot plot of the bank showcased hawkishness, as the members penciled only one cut in 2024 and pushed the end of the rate cut curve, well into 2025.
Obviously as in every gold exchange between the Fed and markets, pushbacks and divergencies in opinions/forecasts were observed, with equity traders shrugging at the Fed’s hawkish tone, sticking to their guns, propelling all but one stock market indices, into fresh record high territory.
A similar stance was adopted by money markets, who continue to forecast that the central bank will go forth with two cuts instead on the signaled one, as investors place their faith in cooler incoming CPI print(s) and currently, FFF probabilities are in favour for a 25bps cut in September and another in December, which will leave a key terminal rate of 5% at years end.
Gold held gains from the cooler CPI print earlier in the day and finished the session in the greens, above the $2300 range, as both the greenback and the bond yields headed south. Overall, should further incoming data, for example next week’s retails sales and PMI updates, favour additional rate reductions, the precious is reasonably expected to gain further ground, since the prospect of looser financial conditions polishes the appeal of the safe haven asset.
Marginal CPI cooldown lifts optimism for gold cuts
Yesterday, prior to the decision, investors came face to face with a fresh CPI update which showcased that inflation in the US cooled more than economists anticipated, with the headline rate edging marginally lower to the 3.3% level and likewise the core rate, which excludes volatile food and energy prices, sliding to 3.4%.
Despite both figures recording desirable developments, both still are higher than the bank’s 2% target, signaling to the Fed that a policy pivot may be a premature decision, since inflation remains sticky.
Irrespective of whether policymakers took into account the May’s CPI reading or not, economists extrapolated that last week’s NFP print may have enticed the central bank to hold dearly to its strict stance, since an unemployment rate revolving around the 4% historical low range and an above average number of new jobs created, broadcasted yet again the resilience of the labour market amidst a high interest rate environment.
Chair Powell makes no promises
At the press conference the head of the central bank, Chair Powell, refrained from making commitments for the bank’s future policy practices and emphasized the need to see favourable data on the inflation front before moving with rate reductions.
Listening to his words, economists now started to extrapolate that possibly three consecutive prints of cooler inflation, that will bring further down the aggregate, may do the trick and entice policymakers to pivot, later on this year.
Gold Technical Analysis
XAUUSD H4 Chart
- Support: 2290 (S1), 2240 (S2), 2190 (S3)
- Resistance: 2330 (R1), 2390 (R2), 2450 (R3)
Looking at XAUUSD Daily Chart we observe the precious pulling further away another week after hitting fresh record highs and now its price is now bounded within a descending channel incepted since the 20th of May.
We hold a bearish gold outlook bias for the commodity given the formation of sequential lower highs and lower lows, yet we note that the ADX indicator line below our chart has now plummeted, signifying a loss of strength of the current short-term trend. Supporting the case for a bearish outlook is the RSI indicator that registers a value of 47, indicating slight bearish sentiment but also the MACD line which has crossed below the threshold, validating the shift in trend and the fact that the bears currently drive price action.
Should, the bulls retake the initiative and gain control of the commodity’s direction, we may see the precious recuperating today’s losses, break past the $2330 (R1) closest resistance barrier and head for the $2390 (R2) area. Should on the other hand, the bears remain in control of the move, a break below the $2290 (S1) support level shall be expected, alongside a drop near the $2240 (S2) support base.
Gold update which showcased that inflation in the US cooled more than economists anticipated, with the headline rate edging marginally lower to the 3.3% level and likewise the core rate, which excludes volatile food and energy prices, sliding to 3.4%.
Despite both figures recording desirable developments, both still are higher than the bank’s 2% target, signaling to the Fed that a policy pivot may be a premature decision, since inflation remains sticky.
Irrespective of whether policymakers took into account the May’s CPI reading or not, economists extrapolated that last week’s NFP print may have enticed the central bank to hold dearly to its strict stance, since an unemployment rate revolving around the 4% historical low range and an above average number of new jobs created, broadcasted yet again the resilience of the labour market amidst a high interest rate environment.
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