Gold price holds onto gains as speculation for Fed rate cuts in June deepens

• Gold price rises as the Fed remains stuck with projections of three rate cuts this year.
• US yields fall sharply as market expectations for the Fed starting rate cuts from June rise.
• An improved US economic outlook could restrict the downside in the US Dollar.

Gold price (XAU/USD) clings to gains near fresh all-time highs around $2,220 in Thursday’s European session. Investors are gung-ho on Gold as markets increasingly expect the Federal Reserve (Fed) to lower interest rates in the June policy meeting. 

The speculation over Fed rate cut hopes for June escalated after the quarterly updated dot plot of March’s policy meeting showed that three rate cut projections for this year remain on the table. Comments from Fed Chair Jerome Powell also helped to firm demand for Gold. Powell said policymakers are confident that underlying inflation is easing despite sticky February’s inflation numbers. Firm expectations for the Fed reducing interest rates diminish the opportunity cost of holding investment in non-yielding assets such as Gold. Meanwhile,  yields on 10-year US Treasury bonds fall by 1% to 4.23%.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rebounds to 103.50 after the decline was seen post-release of the dot plot.  However, upwardly revised forecasts for the Gross Domestic Product (GDP) and the annual Core Personal Consumption Expenditure Price Index (PCE) for 2024 could limit the US Dollar’s downside. An improving US economic outlook bodes well for the US Dollar.

Daily digest market movers: Gold price jumps higher as US yields hit hard

• Gold price falls slightly after refreshing all-time highs at around $2,223 as the US Dollar rebounds from a five-day low of 103.17. 
• The demand for Gold is broadly bullish as the Federal Reserve indicated that inflation is moving in the right direction. The Fed is confident that underlying price pressures are easing despite inflation remaining stubborn in the first two months this year. Fed officials project the annual Core PCE Price Index at 2.6% in 2024, higher than the 2.4% anticipated in December’s policy meeting.
• The updated Fed’s dot plot indicated that December’s projections of three rate cuts in 2024 remain on track. Nine out of 19 policymakers support lowering interest rates three times this year, while one had projected more than three. The remaining policymakers anticipated to have two or less rate cuts in the same period.
• This has uplifted expectations for the Fed reducing interest rates from the June policy meeting. The CME FedWatch tool shows that there is a little over 74% chance that a rate cut will be announced in June, which is significantly up from 59% recorded before the Fed’s meeting.
• While the Fed’s projection for lowering interest rates three times this year remains intact, median rate projections for 2025 and 2026 have increased to 2.9% and 3.1%, respectively. The median projections for the longer-term rate have also increased to 2.6%.
• Regarding the United States economic outlook, the Fed sees the Unemployment Rate at 4.0% by 2024, down from 4.1% anticipated in December. Meanwhile, forecasts for the 2024 Gross Domestic Product (GDP) have been upwardly revised to 2.1% from the 1.4% projected in December.

Technical Analysis: Gold price refreshes all-time highs near $2,220

Gold price hovers near all-time highs around $2,220. The short-term demand for the Gold price is extremely bullish as the 20-day Exponential Moving Average (EMA) at $2,137 is sloping higher vertically. 

The Gold price is trading in unchartered territory but could face resistance near the 161.8% Fibonacci extension level at $2,250. The Fibonacci tool is plotted from December 4 high at $2,144.48 to December 13 low at $1,973.13. On the downside, December 4 high at $2,144.48 will be a major support for the Gold price bulls.

The 14-period Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, indicating more upside ahead.