Gold trades below $2,350 on hotter-than-expected US inflation data

On Monday, during the early Asian session, the gold price (XAU/USD) softened, trading around $2,335. This slight dip comes in the wake of recent U.S. economic data revealing persistent inflationary pressures, which has fueled market skepticism regarding the likelihood of imminent rate cuts by the U.S. Federal Reserve (Fed). With the Fed’s interest rate decision due on Wednesday, all eyes are keenly focused on potential policy changes.

Simultaneously, the U.S. Dollar Index (DXY), which gauges the value of the USD against a basket of currencies from major U.S. trade partners, has declined to 106.00. Additionally, U.S. Treasury bond yields have decreased, with the 10-year yield dropping to 4.667%.

Recent data released on Friday showed that the headline and Core Personal Consumption Expenditures (PCE) Price Index for March aligned with expectations, rising by 0.3% month-over-month. However, annual headline inflation for March escalated to 2.7% year-over-year from February’s 2.5%, surpassing the anticipated 2.6%. Core PCE inflation exceeded expectations, increasing by 2.8% year-over-year compared to the forecasted 2.6%.

Futures markets have adjusted their expectations following this report, now pricing in nearly 60% odds that the Fed will cut interest rates at its September meeting, a slight increase from prior estimations, according to the CME FedWatch tool. Nevertheless, it is widely anticipated that the Fed will maintain its policy rate within the current range of 5.25%–5.5% this Wednesday and continue to indicate a lack of urgency regarding rate cuts. This hawkish sentiment could reduce the attractiveness of non-yielding assets like gold, potentially exerting downward pressure on gold prices.

In a related development, geopolitical tensions continue to play a role in gold market dynamics. On Saturday, Hamas disclosed that it was considering a new Israeli proposal for a ceasefire in Gaza. This came as Egypt ramped up its efforts to broker an agreement between Israel and Hamas to end the hostilities and prevent an Israeli military incursion into the southern Gaza city of Rafah, as reported by The Guardian. Gold traders are closely monitoring these developments, as any escalation in Middle Eastern tensions could enhance the appeal of gold as a traditional safe-haven asset.

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