Gold (XAU/USD) slipped to around $2,310 on Wednesday as investors absorbed comments from Federal Reserve (Fed) officials, who continue to show reluctance in cutting interest rates due to persistent inflation. The expectation of maintaining elevated interest rates negatively impacts gold, as it increases the opportunity cost of holding the non-yielding asset.
GOLD’S DECLINE AND FED’S STANCE
Gold prices ticked marginally lower on Wednesday, following a decline of over half a percent the previous day. This downward trend is influenced by several Fed officials reiterating their stance on interest rates.
Fed Governor Lisa Cook mentioned that while it will eventually be appropriate to cut rates, maintaining the current level is the right strategy for now to address the economic outlook. Similarly, Fed Governor Michelle Bowman emphasized that it is premature to cut rates, stating that inflation must move sustainably towards the Fed’s 2.0% target before considering a gradual reduction in policy rates. She added that inflation is trending towards the target as long as the current policy remains unchanged for some time.
San Francisco Fed President Mary Daly also voiced her opinion, asserting that the Fed should not cut rates until there is more confidence that inflation is heading towards 2.0%. However, she warned against focusing too much on inflation at the expense of the labor market, suggesting that rising unemployment might necessitate rate cuts to support businesses and employment.
MARKET SENTIMENT AND FUTURE OUTLOOK
The probability of an interest-rate cut at or before the Fed’s September meeting has slightly decreased from 67% to 66%, according to the CME FedWatch tool, which uses Fed Funds futures prices to calculate chances. Such a rate cut would be a bullish signal for gold.
Gold traders will be closely watching the US Personal Consumption Expenditures (PCE) Price Index for May, due on Friday, as it is the Fed’s preferred inflation gauge. A lower-than-expected result would increase the likelihood of an early rate cut, supporting gold prices, while a rise in inflation would have the opposite effect.
TECHNICAL ANALYSIS: GOLD NEAR KEY SUPPORT
Technically, gold is approaching a critical support level and the neckline of a possible topping pattern at $2,279. A break below this level could trigger a significant downward move in gold prices.
GOLD PRICES IN PAKISTAN
In Pakistan, gold prices have also seen a decline. As of Wednesday, 24-karat gold is being sold at Rs240,600 per tola, down by Rs900 per tola. The price has been kept Rs1,500 below its actual cost, reflecting reduced purchasing power.
The Karachi Sarafa Association reported that 24-karat gold is priced at Rs206,276 per 10 grams, a decrease of Rs771 per 10 grams. Similarly, 22-karat gold prices have dropped to Rs189,086 per 10 grams.
However, silver prices remain unchanged in the domestic market, with 24-karat silver sold at Rs2,850 per tola and Rs2,443 per 10 grams.
Globally, spot gold traded near $2,316 an ounce, down by $14.4 or 0.62%, reflecting broader economic concerns impacting precious metal markets.
