Gold price edges down from all-time highs as US Dollar Treasury yields revive.

In Thursday’s early American session, the gold price experienced a downturn from its recent all-time highs, touching around $2,220, as the US Dollar and Treasury yields saw a significant recovery. The US Dollar Index (DXY), which measures the dollar’s value against a basket of six major currencies, climbed back to 103.50. This rebound followed a decline triggered by the Federal Reserve’s recent projections, known as the dot plot. The Fed’s upward revisions for the Gross Domestic Product (GDP) and the annual Core Personal Consumption Expenditure Price Index (PCE) for 2024 have mitigated the downward pressure on the US Dollar, signaling an optimistic outlook for the US economy. Concurrently, the 10-year US Treasury yields surged to 4.27% as the Fed remained non-committal on the exact timing for anticipated rate cuts.

Gold had reached new all-time highs amid heightened anticipation of Federal Reserve rate cuts in June, following the March policy meeting’s quarterly dot plot update. This update reaffirmed the possibility of three rate cuts within the year. Federal Reserve Chair Jerome Powell’s comments, suggesting confidence in easing underlying inflation despite persistently high inflation figures in February, also bolstered gold demand. The prospect of reduced Federal Reserve interest rates lowers the opportunity cost of investing in non-yielding assets like gold, enhancing its appeal.

However, gold’s price took a sharp downturn after hitting highs of approximately $2,223, as the dollar recovered from its five-day nadir of 103.17. This correction in gold prices comes despite a generally bullish demand outlook, spurred by the Federal Reserve’s indications that inflation is trending towards its target and confidence that price pressures are softening. The Fed’s officials have adjusted their projection for the annual Core PCE Price Index to 2.6% in 2024, an increase from the 2.4% forecasted in December’s policy meeting.

The Fed’s latest dot plot, maintaining the December projection of three rate cuts in 2024, has buoyed expectations for rate reductions starting from the June policy meeting. According to the CME FedWatch tool, there’s a more than 74% probability of a rate cut announcement in June, a substantial rise from the 59% likelihood noted before the Fed meeting.

While the Federal Reserve’s stance on reducing rates three times this year remains unchanged, the median rate projections for 2025 and 2026 have seen upward revisions to 2.9% and 3.1%, respectively. Additionally, the longer-term rate projection has been adjusted to 2.6%.

In terms of the US economic forecast, the Federal Reserve has revised its unemployment rate projection for 2024 to 4.0%, down from the previously anticipated 4.1%. Furthermore, the GDP growth forecast 2024 has been revised upward to 2.1% from the 1.4% projected in December, indicating a more optimistic view of the United States’ economic trajectory. This complex interplay of economic indicators, policy projections, and market reactions underscores the dynamic nature of gold prices and their sensitivity to shifts in monetary policy and economic outlooks.

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