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Gold prices fall due to dollar strength and awaited Federal Reserve comments

May 6, 2024

6th May 2024 – In the early trading hours on Monday in Asia, gold prices saw a decrease of 0.3%, with spot gold dropping to $2,294.97 per ounce as of 0040 GMT. Similarly, U.S. gold futures also experienced a dip of 0.3%, settling at $2,301.00 per ounce.

This decline coincided with a slight firming of the dollar index by 0.1%, which typically makes gold, a dollar-denominated asset, less attractive to investors holding other currencies.

Economic indicators, market expectations

Recent U.S. labour market data indicated a slowdown in job growth for April, more than was anticipated. This development has reinforced market expectations that the Federal Reserve might initiate interest rate cuts later in the year, with current projections showing a 67% likelihood of a cut in September.

High interest rates have been increasing the opportunity cost of holding non-yielding assets like gold, impacting investor interest.

Comments from Federal Reserve officials are keenly awaited by traders for further clues on the interest rate trajectory. Austan Goolsbee, president of the Chicago Fed, recently suggested that the Fed could enhance its quarterly “dot plot,” which outlines policymakers’ interest-rate-path views, by including individual economic expectations.

Meanwhile, John Williams, president of the New York Fed, emphasised the importance of maintaining the 2% inflation target to achieve price stability. These insights are crucial as they provide a glimpse into the strategic considerations of the Fed’s policy decisions.

Physical gold

In the international market, physical gold demand in India remained subdued last week. Despite a slight price correction, buyers are holding off purchases in anticipation of a further price drop.

In China, gold premiums also decreased for the second consecutive week, reflecting tepid demand during the holiday period.

The broader precious metals market also mirrored gold’s downtrend. Spot silver decreased by 0.2% to $26.49 per ounce. Platinum saw a decline of nearly 0.7%, pricing at $948.40 per ounce, while palladium edged down by 0.5% to $940.60 per ounce.

As gold prices fluctuate in response to the strengthening U.S. dollar and anticipations surrounding Federal Reserve policies, savvy traders are presented with observable opportunities to capitalise on these movements.

Whether you are looking to hedge against inflation, speculate on economic announcements, or diversify your investment portfolio, understanding the dynamics of precious metals can provide a strategic advantage.

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