Gold Weakened after Fed Officials Signalled a Preference to Delay Rate Cuts

Gold (XAU/USD) Analysis

• Fed officials communicated that they are in no rush to start the cutting cycle amid a strong US economy, emboldened consumer and potential Red Sea escalation
• Gold prices have edged lower towards the end of the week as Fed officials spur on USD
• The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

Fed Officials Happy to Delay Cutting Cycle, Seeking Further Progress on Inflation

A number of prominent Fed officials voiced their opinions of the US economy, inflation and the timing of the first interest rate cut in what would be the next phase of central bank monetary policy after holding rates above 5%.

The Fed’s Patrick Harker acknowledged the strength of the US economy alongside consumer spending and warned about the potential of cutting interest rates too early. He, like many others at the Federal Reserve, prefer to adopt the ‘wait and see’ approach with the goal of attaining greater confidence that inflation is under control.

The Vice Chair of the Federal Reserve Philip Jefferson sought to avoid a stop start approach when it comes to rate cuts later this year and is not focusing on one particular data point but instead is looking at a broader body of evidence that would point towards a rate cut.

Overall, the Fed minutes and recent comments from Fed officials have been perceived as slightly hawkish, favouring the higher for longer narrative for now – lifting the US dollar and weighing on gold.

Weekly Gains Under Threat as Fed Officials are in no Hurry to Cut

Looking at the weekly gold chart it’s clear to see gold prices have pulled back from weekly high, looking destined for another test of the zone of support around $2010. Since the start of the year gold prices have been trending lower but maintain the potential for spikes to the upside as the precious metal provides a safe haven appeal amidst ongoing geopolitical tensions. Fundamentally speaking gold prices hold onto a number of tailwinds for 2024 with its safe haven appeal being one of them but also the prospect of interest rate cuts, lower US yields, and a potentially weaker dollar all boding well for precious metal.

Gold (XAU/USD) Weekly Chart

Source: TradingView, prepared by Richard Snow

The daily chart helps us focus on more granular price action details during a week that initially saw an upside continuation which has now turned lower after reaching resistance. The 50 day simple moving average came into play yesterday with prices tagging this level and retreating thereafter. The 50 SMA also coincides with the prior ascending trendline which now functions as resistance.

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Gold prices have continued where they left off yesterday, declining slightly as we head into the weekend. Next week US PCE data will add to the inflation data the Fed has been referring to and will factor into the decision-making process going forward. Inflation has proven relatively sticky over the last two months and the committee will be looking for further progress. $2010 emerges as support with $1985 thereafter.

Gold (XAU/USD) Daily Chart

Source: TradingView, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX