Gold prices decline as stronger dollar curbs appeal

Persistent uncertainties shape precious metal's performance
Gold prices decline as stronger dollar curbs appeal
Markets are currently pricing in a 68 percent chance of an interest rate cut in June

Gold prices saw a decline on Monday, pressured by a strengthening U.S. dollar. Investors now await further clues on the U.S. Federal Reserve‘s timing of this year’s first interest rate cut. While the precious metal edged higher amidst ongoing geopolitical turmoil, concerns over the Fed’s monetary policy direction restrained its upward momentum.

By 06:42 GMT, spot gold declined 0.09 percent to $2,033.58 per ounce. Meanwhile, U.S. gold futures dipped 0.30 percent to $2,043.2 per ounce.

In Dubai, 24-carat gold was priced at AED246.25 per gram, while 22-carat stood at AED228 per gram.

Geopolitical uncertainties

Gold prices faced downward pressure amid bets that the Federal Reserve might maintain higher interest rates for a longer duration. However, the looming risk of escalated tensions in the Middle East and the prolonged Russia-Ukraine war provided some support to gold prices.

Impact of U.S. dollar

The anticipation of a delay in Federal Reserve interest rate cuts hindered gold’s ability to extend gains beyond its recent highs. The minutes from the FOMC meeting indicated that policymakers were hesitant to consider rate cuts without more confidence in falling inflation. Markets are currently pricing in a 68 percent chance of an interest rate cut in June, according to the CME Fed Watch Tool. Thus, lower interest rates boost the appeal of holding non-yielding gold.

The U.S. dollar index recorded a 0.1 percent increase, making greenback-priced gold less affordable for overseas buyers. However, the retreat in U.S. Treasury bond yields from their yearly peak, albeit remaining supported by the Fed’s hawkish outlook, acted as a tailwind for the U.S. dollar, consequently capping gold prices’ upward movement.

Read: Oil prices slip as U.S. Fed signals delay in interest rate cuts

Market outlook

Investors are closely monitoring this week’s key U.S. macroeconomic data, including the Core PCE Price Index, for insights into the Federal Reserve’s future policy decisions. The release of these data points is expected to provide clarity for market participants, guiding their directional bets on gold prices and other commodities in the near term.

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