Gold Struggles as US Rate Cut Hopes Fade and Dollar Strengthens

On 20 June, spot gold had declined by 0.6% to hit an amount of $3,350.66 an ounce, representing a decrease of 2.4% for the week. U.S gold futures also decreased by 1.2%, recording a settlement value of $3,366.30. With a change in expectations about the US rate cuts, gold prices are gearing towards the worst week in the past month. There had been a time of optimism that had developed over the future of rate cuts, but the recent comments released by the Federal Reserve have dampened the fires of enthusiasm, and the price of gold has plummeted accordingly.

This price decline is an indication of a wider movement in the performance of gold over the week. This is because the dollar is strengthening, and more fears about the US rate hike path have aggravated the performance of the precious metal. The dollar alone has increased by 0.5% this week to trade on course to record its largest weekly gain in more than four weeks. All these factors have caused a perhaps temporary break in the gold rally.

Geopolitical Uncertainty Eases, Further Impacting Gold

The other important factor attributed to the performance of gold this week is the reduced geopolitical tension. This is especially true of the current air combat between Israel and Iran. The US President Donald Trump is expected to make his final decision on whether the US will interfere in the conflict within the next two weeks. Judging by the relatively calmer expectations among the markets, some of the uncertainty of investors in the gold-as-a-safe-haven asset is alleviated.

Nitesh Shah, commodities strategist at WisdomTree, has also commented on the recent developments. He has said that the two-week deadline given by Trump to decide on the US participation in the conflict means that there is a chance of cooling the overheated situation. This has been a relief from market uncertainty. A factor that has deprived the gold commodity of its status as a safe-haven investment. This has resulted in a reduction of gold prices as some traders have decided to take profits after having incurred steady demand for the metal.

US Federal Reserve’s Actions and Impact on Gold Prices

Another major factor that determines the price of gold is the monetary policy adopted by the Federal Reserve. On 20 June, the Fed maintained the interest rate in the same range of 4.25%-4.50%. However, this has greatly changed its outlook on the interest rate cuts in the future. The economy was first hoping that deeper reductions would be made. Meanwhile, it could have been good news for gold because it performs better when interest rates are low. The prudent approach of the Fed regarding cuts indicates that the rates may not fall as rapidly as they were anticipated before. Therefore, this may result in the decline of gold prices.

This change was made following the Fed meeting on the Federal Open Market Committee (FOMC) that was held on Wednesday. The Fed produced an updated assessment of the general economic outlook and noted that the future path would not be as easy as expected before. Ole Hansen, the boss of commodity strategy at Saxo Bank, has noted that gold is likely to be in its current stability period. Further, support levels could go to around 3,320 and 3,245.

Other Precious Metals Experience Mixed Performance

Other precious metals have had ups and downs. Silver decreased by a percent to sell at 36.01 per ounce. Palladium, on the other hand, experienced a marginal rise by 0.1 to an amount of $1,051.53 per ounce. After hitting its highest since January 2008, Platinum dropped by 1.4% to 1,289.52 on profit-taking, which occurred after its upward trend. The wider movements of these metals are an indication of the uncertainty that has been prevailing in the markets. Traders are currently all waiting on further hints by the Fed and on the geopolitical front.

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