- Gold prices settled below $2300 an ounce on Wednesday trading, hovering near a four-week low as investors turned cautious ahead of the Federal Reserve's policy decision amid concerns it will keep US interest rates high for an extended period.
- Gold fell over 2% on Tuesday, extending losses to $2285 an ounce, and today continued its decline to $2282 an ounce as the dollar and Treasury yields rose on the back of strong US wage data.
The US Employment Cost Index, a key gauge of wages for civilian workers, rose more than expected by 1.2% in the first quarter. Traders have also unwound their bets on Federal rate cuts this year in recent weeks due to strong US economic data and stubborn inflation.
As you know, higher interest rates increase the opportunity cost of holding non-yielding bullion, which undermines its appeal. Elsewhere, the World Gold Council said global gold demand rose 3% year-on-year to 1,238 metric tons in the first quarter, the strongest start to a year since 2016.
According to the platforms of gold trading companies, gold prices have been volatile as traders look ahead to a week that includes the Federal Reserve's rate decision meeting and key US jobs data. Policymakers are expected to reiterate their stance on raising interest rates for longer at the end of a two-day meeting on Wednesday. The last time Fed Chairman Jerome Powell spoke, he indicated that policymakers were likely to keep borrowing costs higher for longer than previously expected, citing a lack of progress in bringing down inflation and continued strength in the labor market.
On the other hand, the US non-farm payrolls number due out on Friday will also be important for traders. With the Fed's preferred inflation gauge rising at a rapid pace in March, swaps traders now see just one Fed rate cut this year, down from the six or so quarter-point cuts they were pricing in at the start of the year. Higher rates are generally negative for gold because it does not pay interest.
In other news, the yen rose after touching its weakest level against the dollar in 34 years, amid speculation that the Japanese government will intervene to support its beleaguered currency for the first time since 2022. Any action could weaken the dollar, which could boost bullion.
Gold Price Forecast and Analysis Today:
In general, the price of gold has risen by more than 13% this year, hitting a record level earlier this month, despite the Federal Reserve's postponement of its timeline for interest rate cuts. The rise in the precious metal over the past two months has been linked to central bank purchases, strong demand from Asian markets, especially China, and increased geopolitical tensions from Ukraine to the Middle East. I see the current selling activity as an opportunity to return to buying gold, and the most suitable levels to do so currently are the support levels of $2245 and $2180, respectively.
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