The fluctuation of gold price (XAU/USD) continues on Monday as it struggles to gain traction, oscillating below the $2,330 level during the Asian trading session. Traders are hesitant to make significant moves due to the uncertainty surrounding the Federal Reserve’s rate-cut path, leading to subdued price action. While recent US inflation data supports the likelihood of rate cuts in September and December, hawkish comments from influential FOMC members suggest a delay in interest rate adjustments.
The US Dollar’s corrective pullback from a two-month high is posing a challenge to gold price movement, acting as a tailwind for the metal. Despite geopolitical tensions and political uncertainty, including France’s snap election, enhancing the safe-haven appeal of gold, rising bond yields are inhibiting substantial price gains.
Data released on Friday indicating a slowdown in May’s inflation rate has increased speculation for a Federal Reserve rate cut in September. The lowering of the PCE Price Index and core PCE Price Index suggests a potential shift in monetary policy. The US Dollar’s retreat from a peak in reaction to the data has provided some support to gold price.
Events like the first round of France’s parliamentary elections, China’s manufacturing activity data, and statements from FOMC members contribute to the volatility in gold price. The unpredictability surrounding economic indicators, geopolitical risks, and monetary policy decisions impacts the market sentiment and the price of gold.
From a technical perspective, the failure near the 50-day Simple Moving Average (SMA) support breakpoint indicates a bearish stance, although caution is advised due to neutral oscillators. The $2,338-2,340 region serves as a hurdle, while a breakthrough could lead to a rally towards the $2,400 mark. Conversely, a decline may find support at key levels before reaching the $2,200 zone.
The Federal Reserve plays a significant role in shaping US monetary policy, focusing on price stability and employment. Interest rate adjustments are the primary tool to achieve these goals, affecting inflation, the USD strength, and overall economic conditions. Policy decisions made by the FOMC members during meetings impact market expectations and investor behavior.
In extreme circumstances, the Federal Reserve may implement Quantitative Easing (QE) to stimulate the economy by increasing credit flow. This non-standard policy measure, used during crises or low inflation periods, involves purchasing high-grade bonds. Quantitative Tightening (QT) is the opposite process, which strengthens the USD by reducing bond purchases and reinvestments.
The gold price remains volatile due to a combination of economic, geopolitical, and policy-related factors. The uncertainty surrounding the Federal Reserve’s rate-cut path, global economic indicators, and geopolitical developments influence market sentiment and contribute to the fluctuation in gold prices. Traders and investors must carefully analyze the current market conditions and upcoming economic releases to navigate the challenges and opportunities presented by the dynamic gold market.