Gold Prices PLUMMETING 7% After SHOCKING News! (But Wait…)

Gold tumbles as US rate cuts seem unlikely. Strong jobs data and inflation worries dim hopes for September cut. Fed meeting eyed for clues, gold at resistance with $2,285 downside.

CONTENTS: Gold Prices PLUMMETING 7% 

• Gold lower on rate cut, China pause
• Gold down on rate hike delay
• Gold eyed lower on FOMC, CPI data
• Gold mixed, short-term lower, medium-long bullish

Gold is trading slightly lower due to expectations of fewer interest rate cuts in the US and the People’s Bank of China (PBoC) pausing its gold purchases. The precious metal is encountering key resistance at $2,315 and may see volatility with the release of significant CPI data and the Federal Reserve’s meeting decision on Wednesday. Currently, XAU/USD is in the $2,310 range, with traders anticipating the impactful US Consumer Price Index (CPI) data for May and the Federal Reserve’s Open Market Committee (FOMC) meeting.

Gold prices are weakening due to expectations that US interest rates will remain elevated for an extended period. The recent US Nonfarm Payrolls (NFP) data indicated a strong labor market and rising wages, suggesting continued inflation pressures. This has diminished the likelihood of the Federal Reserve lowering interest rates in September. Higher interest rates increase the opportunity cost of holding non-yielding assets like gold, making it less attractive to investors.

Investors are now awaiting the US CPI data for May, due at 12:30 GMT, to gauge the inflation trend. Economists predict a 0.1% month-over-month and 3.4% year-over-year increase in overall prices, with core prices expected to rise by 0.3% and 3.5%, respectively.

If the readings are higher than expected, it would reinforce the inflation concerns highlighted by the payroll data, further decreasing the chances of a September rate cut, which currently stands at 53% according to the CME FedWatch Tool. In this scenario, November would become the most probable month for the Fed to start reducing rates, potentially causing a bearish reaction in gold prices.

Following the CPI data, the FOMC meeting at 18:00 GMT will be closely watched by investors. While no interest rate changes are anticipated, there’s anticipation for adjustments to the Summary of Economic Projections (SEP), particularly the “dot-plot,” which illustrates how Fed members view future interest rate movements. Currently, the dot-plot suggests three rate cuts of 0.25% each in 2024.

However, based on the robust NFP data and contingent upon the CPI release, this projection might be revised downward in the new SEP. If so, traders may opt to sell gold.

In terms of technical analysis, gold is persistently testing resistance around $2,315, indicating a short-term downtrend. Considering the adage “the trend is your friend,” the likelihood leans towards further downward movement in the short run. The next downside target is approximately $2,285, representing the full extrapolation of the preceding downtrend prior to the trendline break in May.

On the 4-hour chart for XAU/USD, a substantial downward movement could lead gold to find support around $2,279, which corresponds to the swing low observed in late April to early May.

Conversely, a clear breakthrough above the resistance barrier at $2,315 could indicate that the short-term downtrend is losing steam, potentially signaling further upward movement.

Although there’s a short-term weakness apparent, it’s important to note that the medium and long-term trends for gold remain bullish. This suggests that despite current fluctuations, there’s still a considerable probability of a recovery in the foreseeable future.