Gold struggling to capitalize momentum

Gold price (XAU/USD) is struggling to capitalize on the positive momentum it started yesterday after surpassing the resistance between $2040-2042. It fluctuates within a narrow range in the early hours of Friday. At the same time, the precious metal remains close to its highest levels in nearly a month, drawing strength from the modest decline in the US dollar. This comes after the US Personal Consumption Expenditures Price Index showed that annual inflation in January was the lowest in three years, supporting expectations of a renewed Federal Reserve interest rate cut.

However, recent comments from several Fed members suggest that the central bank may not be in a rush to cut interest rates, and the policy meeting in June might be the first opportunity for a rate cut. The hawkish outlook continues to support the rise in US Treasury bond yields, potentially limiting the decline of the dollar and weakening the current upward trend in the gold price.

From my perspective, risk sentiment currently dominates due to the extended rise in global stock markets, preventing traders from placing new bullish bets on gold, which is considered a haven. This calls for caution before establishing positions for any upward movement in the short term.

US inflation data has aligned with market expectations, indicating that the Federal Reserve is likely to stay on track for interest rate cuts later this year, providing some support for the gold price. However, markets still consider the possibility of the first interest rate cut in June, especially after the confirmation of expectations through comments from several Federal Reserve officials. Raphael Bostic, President of the Federal Reserve Bank of Atlanta, mentioned that the pace of inflation decline in the United States likely justifies the central bank starting to cut interest rates in the summer.

Currently, US Treasury bond yields are trading near recent highs, alongside the extended rise in risk in global stock markets, which continues to prevent further gains for gold as a haven. I anticipate that economic data will increase market probabilities for a Federal Reserve interest rate cut in June, and the pricing of that may begin early and strongly.

However, from my perspective, it would be beneficial to see whether officials at the Federal Reserve provide a specific timing for interest rate cuts amid slowing growth and inflation pressure. This is especially relevant after comments from New York Federal Reserve President John Williams on Wednesday, stating that the decision to cut interest rates will depend on incoming data. He added that the central bank has made significant progress in reducing inflation to the 2% target, but there is more work to be done to confirm the pace of its decline.–By Rania Gule, Xs,com