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The most "hawkish" official of the Federal Reserve triggered a correction in gold prices. Analysts: The next support level will be $2,300/ounce

2024-06-26

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On Tuesday (June 25), spot gold prices fell sharply by nearly $15, hit by rising U.S. dollar and U.S. bond yields. Investors are waiting for U.S. PCE inflation data to be released later this week to get a glimpse of when the Fed will cut interest rates this year.

FXStreet analyst Christian Borjon Valencia pointed out that stimulated by the hawkish remarks of Fed Governor Bowman, U.S. Treasury yields rose on Tuesday, the dollar began to recover, and gold prices fell sharply after reaching this week's high of $2,337/ounce.

The U.S. dollar index closed up 0.13% at 105.66 on Tuesday.

Spot gold closed down $14.80, or 0.63%, at $2,319.33/ounce on Tuesday.

Fed Governor Bowman does not expect a rate cut in 2024, postponing the expected rate cut to 2025. As the most hawkish Fed official at present, Bowman is one of the very few decision makers who does not expect a rate cut this year.

In a speech on monetary policy and bank capital reform on Tuesday, Federal Reserve Board member Bowman said she believes "several upside risks to inflation" will affect her outlook for monetary policy.

Bowman expects U.S. inflation to remain high for some time, and there are still some upside risks to inflation, so now is not the right time to cut interest rates.

In her outlook for the rest of the year, Bowman said in a question-and-answer session that her economic forecast does not include any rate cuts for the rest of 2024; instead, she postponed the previously expected rate cuts to 2025.

In addition, Bowman said she is closely watching the various segments of inflation and whether the labor market will deteriorate, all of which will have an important impact on the Fed's monetary policy decisions. During Bowman's speech, the U.S. dollar index rose strongly.

Due to Bowman's recent series of tough statements, she is considered the most "hawkish" member of the current Fed policymakers (Board of Governors + Regional Federal Reserve Presidents). In addition, as a board member, she has a vote at every interest rate meeting of the Federal Open Market Committee (FOMC).

On May 17, local time, Federal Reserve Governor Bowman said she expects U.S. inflation to remain high and reiterated that the possibility of raising interest rates is not ruled out if necessary.

For related articles, please click [Beware of the Fed's "Big Eagle" triggering a fierce sell-off in gold prices! FXStreet analyst gold trading analysis]

Waiting for U.S. PCE data

Valencia said that gold traders are waiting for the release of the Federal Reserve's preferred inflation indicator, the personal consumption expenditure (PCE) price index. If the data is lower than the previous value and expectations, it will rekindle hopes for a rate cut in the coming year.

On Thursday, the U.S. Bureau of Economic Analysis (BEA) will release the final value of first-quarter gross domestic product (GDP). On Friday, the U.S. Bureau of Economic Analysis will release May PCE price index data, which is the Fed's preferred inflation indicator.

Economists expect the U.S. PCE price index to be flat on a monthly basis in May, after rising 0.3% in April. The U.S. PCE price index is expected to grow 2.6% year-on-year in May, after growing 2.7% in April. The U.S. core PCE price index is expected to rise 0.1% month-on-month in May, after rising 0.2% in April; the U.S. core PCE price index is expected to rise 2.6% year-on-year in May, after rising 2.8% in the previous month.

Chicago Fed President Goolsbee said in an interview on Monday that he is still looking for further cooling of inflation, which is part of the process of launching interest rate cuts.

How to trade gold after the sharp drop?

Valencia pointed out that gold prices still have a downward trend after forming a "short engulfing" chart pattern last Friday. The figure further verifies the head and shoulders pattern, which means that gold prices may fall further.

Valencia said that the next support level for gold prices will be $2,300/ounce. Once this level is lost, gold prices are expected to fall to the low of $2,277/ounce on May 3, followed by the high of $2,222/ounce on March 21. If it falls below the above level, gold prices will fall further, and sellers will aim for the head and shoulders target of $2,170-2,160/ounce.

Conversely, if gold prices reclaim $2,350 an ounce, they will target key resistance levels such as the June 7 cycle high of $2,387 an ounce, and then gold is expected to challenge $2,400 an ounce, Valencia added.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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The most "hawkish" official of the Federal Reserve triggered a correction in gold prices. Analysts: The next support level will be $2,300/ounce

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