Gold falls when numerous Federal Reserve officials express their unwillingness to lower interest rates further.
Gold (XAUUSD) fell into the $2,310s on Wednesday as investors weighed statements from Federal Reserve (Fed) officials, who appear hesitant to slash interest rates despite stubbornly high inflation. The anticipation that interest rates would continue elevated is negative for gold since it raises the opportunity cost of owning the non-coupon-yielding asset.
Gold steadily falls on aggressive Fedspeak.
Gold fell slightly on Wednesday, following a drop of more than half a percent the day before. Several federal officials stepped up to the speakers’ podium one by one and stated they believe it is still too early to decrease interest rates.
Fed Governor Lisa Cook stated that “at some point, it will be appropriate to cut rates,” but added that keeping rates at their current level was the best plan for the time “to respond to the economic outlook.”
Fed Governor Michelle Bowman stated on Tuesday that it was not yet right to reduce interest rates. Before “gradually lowering policy rates,” inflation statistics would have to be moving more sustainably toward the Fed’s 2.0% objective. At the same time, she said that baseline calculations showed that inflation was on its way down toward the target as long as the Fed maintains policy as it is “for some time.”
San Francisco Fed President Mary Daly stated that she did not feel the Fed should drop rates.
On Monday, San Francisco Fed President Mary Daly stated that she did not feel the Fed should drop rates until it was more convinced that inflation was going for 2.0%. However, she advised against focusing too much on inflation at the expense of the labor market. According to Reuters, if unemployment continues to climb, the Fed may be forced to lower interest rates in order to support businesses and retain employment.
The market-based probability of an interest rate drop at (or before) the Fed’s September meeting fell overnight from 67% to 66%, according to the CME FedWatch tool, which assesses chances using Fed Funds futures prices. Such a cut would be a bullish development for gold of vital interest. The US Personal Consumption Expenditures (PCE) Price Index for May, released on Friday by the Federal Reserve (Fed), will be a key indicator for gold dealers. A lower-than-expected result would raise the odds of the Fed implementing an early rate drop and supporting the gold price. The opposite would be true if inflation rose.
