The Fed Drives Gold Down Changing Expectations Shape the Scene

Gold prices saw a significant drop on Thursday as traders digested the Federal Reserve officials’ updated interest rate outlook, indicating only one rate cut for this year.

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Powell’s Remarks

Gold Settlement on Wednesday

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On Wednesday, the Federal Reserve kept interest rates unchanged while signaling
that policymakers expect only one rate cut in 2024.
Lower interest rates reduce the opportunity cost of holding non-yielding bullion.

Powell’s Remarks

Federal Reserve Chairman Jerome Powell noted that the Fed’s inflation outlook is “somewhat conservative” and may not be supported by incoming data, thus subject to revision. Powell stated that rushing to lower interest rates in the U.S. “could have significant implications for inflation.”

Following the Federal Reserve’s decision to maintain interest rates steady for the seventh consecutive time on Wednesday, Powell explained that he expects the interest rate to stay at 5.1% through the end of this year, with a decline to 4.1% next year. He emphasized the Federal Reserve’s commitment to working towards price stability, anticipating continued inflationary pressures in the U.S. economy over the next two years.

Powell also highlighted the potential for the U.S. Consumer Price Index (CPI) to rise more than expected this year. He added, “We will continue to work to ensure that inflation returns to its 2% target.” On a positive note, the Fed Chairman acknowledged that the CPI data released yesterday, which was better than expected, was a welcome development for the Federal Reserve officials.

May Consumer Price Index (CPI)

The main CPI remained flat month-on-month in May, contrary to expectations of a 0.1% increase. Core prices rose by 0.2%, which is also below economists’ forecasts of a 0.3% increase.

According to data from the U.S. Department of Labor, the annual CPI rate in the United States was 3.3% in May, down from 3.4% in April, against expectations for it to remain unchanged.

Gold Settlement on Wednesday

Gold futures prices bolstered their gains during Wednesday’s trading after
the unexpected slowdown in U.S. consumer prices, fueling hopes for a rate cut this year.

At settlement, gold futures for August delivery increased by 1.2%, or $28.2, to $2,354.8 per ounce.

The Fed Drives Gold Down Changing Expectations Shape the Scene

The Fed Drives Gold Down Changing Expectations Shape the Scene

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