- The dollar rose 0.2% against other currencies, making bullion expensive for overseas buyers.
- Fed’s Austan Goolsbee said he was still waiting for inflation to ease further.
- Estimates show that PCE inflation slowed to 2.6% in May from 2.7%.
Gold prices dipped on Tuesday as the dollar and Treasury yields rose ahead of crucial US inflation figures. At the same time, slightly hawkish Fed remarks dampened expectations for a rate cut, which weighed on gold.
On Tuesday, the dollar rose 0.2% against other currencies, making bullion expensive for overseas buyers. This rally came as hawkish Fed remarks overshadowed indicators of lower inflation in the US. Since the May consumer inflation report, investors have been more optimistic about rate cuts in the US. Moreover, data has shown a slowdown in the economy, which will likely pressure the Fed to start cutting rates.
There was a big price dip on Friday because of upbeat business activity data. However, even within the PMI surveys, inflation eased in May. Therefore, rate cut expectations mainly remained stable. Traders are pricing at least two rate cuts this year, with the first coming in September.
However, that is different from the outlook of Fed policymakers. At its last meeting, the Fed forecasted just one rate cut this year in December. Moreover, Fed officials who have spoken this week have avoided giving clear guidance on rate cuts.
Austan Goolsbee said he was still waiting for inflation to ease further and pave the way for rate cuts. Meanwhile, Lisa Cook said the Fed was on the path to rate cuts, but the outlook will depend on incoming data. Policymakers are not confident enough to start calling for cuts. Therefore, they are awaiting more data to prove that inflation is on a consistent path to the central bank’s target.
This coming Friday, the US will release the Fed’s preferred inflation gauge, the PCE price index. Estimates show that inflation slowed to 2.6% in May from 2.7%. This would be a step closer to the central bank’s target and might encourage policymakers to assume a more dovish tone.
Gold ETF holdings (Source: Bloomberg)
Nevertheless, gold remains elevated and is up nearly 12% this year. This rally was supported by geopolitical tensions, central bank and Asian demand, and Fed rate cut optimism. Most of these factors are still in play. Moreover, gold ETF holders have stopped selling, a sign that the outlook is bright.
