Gold prices decline as focus shifts to Fed officials’ restrictive policy statements

Gold futures declined today after Chairman Powell spoke about a change regarding interest rate cuts this year saying that the fight to tame inflation has appeared to have stalled. Because of that central bankers need more confidence that inflation was on track to decline to its 2% target. Chairman Powell along with other Fed officials said that it is most likely that the Federal Reserve will maintain the current Fed funds rates which are between 5 ¼% and 5 ½% for longer.

Not all economists agreed with the way the Fed has communicated its changes to the public. Ian Shepherdson, the chief economist of Pantheon Macroeconomics said, "For the record, we think delaying rate cuts is a mistake, and the risk of an unwanted recession is rising. But we don't have our hands on the policy levers."

Also, Jamie Cox, a managing partner at Harris Financial Group said, "Markets need to focus on the fact that rates are sufficiently restrictive, instead of how many cuts are in the pipeline."

The only caveat was they would maintain the current levels of interest rates unless the job market should “unexpectedly weaken”. Recent data indicating strength in the economy have diminished investor’s hopes for a rate cut. 

According to the CME’s FedWatch tool, there is only a 4.1% chance that the Federal Reserve will implement a rate cut at the May FOMC meeting. Furthermore, there is only a 16.3% probability of a rate cut at the June FOMC meeting. As recently as one month ago, the FedWatch tool indicated a 55.2% probability of a rate cut in June. Market participants are now anticipating either one or two rate cuts during 2024. This differs from the dot plot released by the Federal Reserve in March, which still anticipated an average of three rate cuts this year.

Recent reports on inflation such as the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) report have shown that components of inflation such as energy and housing costs remain elevated.

As of 5:20 PM EDT, gold futures basis the most active June contract is down $22.90 or 0.95% and fixed at $2376.60.

Wishing you as always good trading,