Gold (XAU/USD) is currently trading in a narrow range as traders await the release of fresh US inflation data – Core PCE. This data is expected to provide clues on when the Fed will start considering a change in its monetary policy. According to economists at MUFG Bank, short-term movements in the price of gold will be closely linked to any data that could influence the Fed’s decision-making process.
Despite expectations of potential easing by the Fed, swaps traders are currently pricing in low probabilities of a rate cut before June, as recent data has reinforced the relative strength of the US economy. Higher interest rates are typically negative for assets like gold, which do not offer any interest payments. However, there has been a decrease in gold holdings by ETFs over the past 12 days, bringing total gold holdings held by ETFs down by 3.5% since the start of the year.
While short-term price movements in gold may be influenced by economic data affecting the Fed’s decisions, the overall outlook remains supported by strong demand from central banks and gold’s role as a hedge against geopolitical uncertainty. The downside risk to gold prices is expected to be limited by these factors, even as market dynamics continue to evolve.
