Gold Prices Dip as Expectations of Fed Rate Hike Intensify

Gold prices have experienced a downward trend recently as the possibility of a Federal Reserve rate hike looms. With the next Federal Open Market Committee (FOMC) meeting scheduled to conclude on July 26, market participants are eagerly awaiting the central bank’s decision. The latest minutes from the previous FOMC meeting revealed a growing sentiment among Federal Reserve officials in favor of a ¼% rate hike. This article explores the factors contributing to the decline in gold prices and highlights the key events that could shape the Federal Reserve’s decision.

While the Federal Reserve chose to maintain interest rates at their current levels during the previous meeting, officials emphasized that this pause did not signify an end to rate hikes. Instead, it provided an opportunity to evaluate the impact of prior rate hikes on inflation. The recently released meeting minutes suggest that the majority of Federal Reserve officials favor further tightening. Nearly all but two of the 18 participants indicated that at least one rate hike would be appropriate this year, with 12 of them expecting two or more hikes. According to the CME’s FedWatch Tool, there is an 88.7% probability that the Federal Reserve will raise rates by 25 bps taking their benchmark rate to between 5 ¼% and 5 ½%.

Adding to the growing expectations of a rate hike, Federal Reserve Chairman Jerome Powell delivered a hawkish outlook on the upcoming monetary policy during the ECB annual forum. He emphasized that more rate hikes can be expected, and elevated interest rates will likely persist until data confirms a decrease in core inflation levels. Powell’s remarks reinforced the market’s anticipation of a more aggressive stance from the Federal Reserve.

Before the FOMC meeting at the end of July, two crucial reports are expected to shape market sentiment, although they may not directly influence the Federal Reserve’s decision. On July 7, the Bureau of Labor Statistics (BLS) will publish the jobs report for June, providing insights into the labor market’s performance. Additionally, on June 12, the BLS will release the latest data on inflation, as measured by the Consumer Price Index (CPI). These reports will be closely watched by investors but are unlikely to alter the Federal Reserve’s pre-existing stance.

Gold, Silver and the US Dollar Today

The combination of rising U.S. Treasury yields, a stronger dollar, and the hawkish tone conveyed in the minutes released today exerted downward pressure on gold prices. As of the latest trading session, the most active August gold futures contract recorded a decline of $6.80, settling at $1922.70.

Concurrently, the U.S. dollar has gained strength, with the dollar index fixing at 103.305, representing a 0.37% increase. In contrast, silver futures for the most active September contract experienced a modest gain of $0.23 (1.02%), reaching $23.13.

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Wishing you as always good trading,

Gary S. Wagner