Gold Prices Fall As Fed Officials Speak Hawkishly

Gold (XAU/USD) traded lower at $2,310 on Wednesday as investors digested comments from Federal Reserve officials who still seem reluctant to cut interest rates amid elevated inflation. Expectations that interest rates will remain elevated are a negative for gold as it keeps the opportunity cost of holding non-interest bearing assets high.

Gold steadily falls on hawkish Fed comments

Gold fell slightly on Wednesday after falling more than 0.5% in the previous session. Several Fed officials took to the podium to say they believe it is too early to cut interest rates.

Fed Governor Lisa Cook said “at some point, it will be appropriate to cut rates,” but added that keeping rates at current levels is the right strategy for now “to address the economic outlook.”

Fed Governor Michelle Bowman said on Tuesday that it is not yet appropriate to cut rates. At the same time, she added that baseline estimates show that inflation will fall toward the target as long as the Fed keeps policy unchanged for “some time.”

On Monday, San Francisco Fed President Mary Daly said she doesn’t think the Fed should cut rates until it’s more confident that inflation is headed toward 2.0%. But she also cautioned against focusing too much on inflation and ignoring the labor market. If unemployment continues to rise, the Fed may have to cut rates to support businesses and maintain employment, according to Reuters.

According to the CME FedWatch tool, the market probability of a Fed rate cut at (or before) the September meeting fell from 67% to 66% overnight. Rate cuts are good for gold.

Gold traders are most concerned about Friday’s release of the U.S. personal consumption expenditures (PCE) price index for May, the Federal Reserve’s preferred inflation indicator. If the result is lower than expected, it will increase the likelihood of an early Fed rate cut and support gold prices. If inflation rises, the opposite is true.

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