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Gold Waits for Central Bank

Gold futures struggled to determine direction in recent trading as investors prepare for the annual US inflation report that may dictate the direction the Federal Reserve will take at its two-day monetary policy meeting.

  • Despite the positive first half for gold prices and exceeding $2,000, they failed to maintain the momentum.
  • According to trading, the XAU/USD gold price is settling around the $1965 resistance level, at the time of writing the analysis.
  • All in all, the price of gold is up about 8% since the beginning of the year.

In the same performance, silver prices, the sister commodity to gold, rose above the $24 resistance level. The price of the white metal is flat this year.

In general, the US consumer price index for May (CPI) will be published on Tuesday. Economists’ expectations indicate that the annual US inflation rate will decline to 4.1% and will rise by only 0.2% on a monthly basis. Core inflation, which removes the volatile energy and food industry from measurement, is expected to drop to just 5.3% and core CPI to rise at a tepid pace of 0.4%.

Tomorrow, Wednesday, the Fed will complete its two-day Federal Open Market Committee (FOMC) policy meeting. According to the CME FedWatch Tool, the futures market is pricing in a pause rate, which will be bullish for non-yielding bullion because moves in US interest rates can affect the opportunity cost of holding the metal commodity.

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In addition, US retail sales, consumer confidence and manufacturing data will be released this week. Consumers have lowered inflation expectations for the coming year. The New York Fed’s survey of consumer expectations revealed that inflation expectations for next year fell to 4.1%, down from 4.4%.

The US Dollar Index (DXY), which measures the performance of the greenback against a basket of other major currencies, had a mixed start to the trading week, falling 0.05% in overnight trading to 103.60. A weaker dollar is good for dollar-denominated commodities because it makes them cheaper for foreign investors to buy. Meanwhile, the US Treasury bond market was mixed, with the benchmark 10-year yield falling 2.7 basis points to 3.738%. One-month yields rose 5.3 basis points to 5.238%, while 30-year yields fell 2.2 basis points to 4.052%.

As for other metals markets, copper futures contract for July was unchanged at $3.753 a pound. Platinum futures rose to $997.40 an ounce. Palladium futures jumped to $1,349.50 an ounce.

The US dollar’s gains stopped prior to the announcement of the US inflation figures, and then the passing of the interest rate decision by the Federal Reserve Bank. This allowed the XAU/USD gold price to recover to the $1966 resistance level, which is stable around it at the time of writing the analysis. According to the performance on the daily chart, if the bulls move towards the $1985 resistance level, this will quickly pave the way for a return to the vicinity of the $2000 psychological resistance again. This is especially if the US inflation numbers and the US Federal Reserve decisions come with an additional impact on the price of the US dollar.

On the other hand, if the data and events are in favor of the dollar, the XAU/USD gold price may give up many of its gains, and a return to the vicinity of the support levels of 1952 and 1930 dollars, respectively, will be possible. I still prefer to buy gold from every downward level.

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