Gold struggles on trimmed Fed rate cut bets, China buying pause

• Gold is down marginally as traders foresee fewer interest rate cuts in the US and China’s PBoC halts its Gold buying. 
• The precious metal could experience volatility when impactful CPI data and the Fed meeting decision are released on Wednesday. 
• XAU/USD continues to bump up against key resistance at $2,315. 

Gold (XAU/USD) trades marginally lower on Wednesday as expectations that interest rates in the  US will remain high, and news the People’s Bank of China (PBoC) has halted Gold buying after an 18-month spree, weigh on the precious metal. 

Gold trades in the $2,310s ahead of potentially market-moving data from the US in the form of the Consumer Price Index (CPI) data for May followed by the Federal Reserve’s (Fed) Open Market Committee Meeting (FOMC). 

Gold weakens on elevated rate outlook

Interest rates in the US are expected to remain higher for longer and this is weighing on the price of Gold. US Nonfarm Payrolls (NFP) data on Friday suggested that a buoyant labor market and rising wages might continue to push up inflation. This, in turn, reduced the probabilities of the Fed seeing fit to lower interest rates in September. The maintenance of higher interest rates for longer increases the opportunity cost of holding non-yielding Gold, making it less attractive to investors.   

Now investors await US CPI data for May out at 12:30 GMT in order to get feedback on the current trajectory of inflation. Economists are expecting broad prices to have risen by 0.1% month-over-month and 3.4% year-over-year. Core prices are seen rising by 0.3% and 3.5%, respectively. Higher-than-expected readings will fuel the inflation narrative portrayed by the payrolls data, further reducing the probability of a cut by September, which currently stands at 53% according to the CME FedWatch Tool. November will then come into view as the most likely month for the Fed to begin lowering interest rates. Such a scenario would probably lead to a bearish reaction in Gold. 

After the CPI data will come the FOMC at 18:00 GMT. Although the Fed is not seen changing interest rates, investors expect changes to the Summary of Economic Projections (SEP) or “dot-plot”, which provides a graphical view of how Fed members see interest rates evolving in the future. Currently the dot-plot is signaling the Fed cutting interest rates three times in 2024, in 0.25% tranches. Given the recent strong NFP data – and dependent on the CPI release – however, this figure may be lower in the new SEP. If so, traders could sell Gold. 

Technical Analysis: Gold continues to retest key resistance

Gold continues to pull back and retest resistance from the bottom of its previous range at $2,315. That said, Gold is probably in a short-term downtrend, and given that “the trend is your friend,” the odds favor it continuing lower in the short-term.  

The next downside target is at around $2,285, the 100% extrapolation of the down-move prior to the trendline break in May, or “a”. 

XAU/USD 4-hour Chart

A stronger move down could see Gold meet support at $2,279 (late April-early May swing low). 

On the other hand, a decisive break above the resistance level at $2,315 could suggest the short-term downtrend is losing momentum and more upside might be on the horizon. 

Despite short-term weakness, the precious metal’s medium and long-term trends are still bullish, and the chances of a recovery remain high.