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GOLD DECLINES ON HIGHER INTEREST-RATE EXPECTATIONS

Wulan Viana
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  • Gold price falls as interest rates are expected to remain high, increasing the opportunity cost of holding Gold. 
  • Fed speakers continue calling for a delay in lowering interest rates, Eurozone inflation is probably rising. 
  • Gold breaks out of its Bear Flag pattern and starts declining towards its bearish targets. 

Gold (XAU/USD) edges lower into the $2,330s on Thursday and finds support at the 50-day Simple Moving Average (SMA). Gold’s decline continues to be driven by higher global interest-rate expectations, which raise the opportunity cost of holding the non-yielding precious metal. 

Gold pressured as interest rates to remain elevated 

Gold has resumed its short-term bearish bias after a few days of backing and filling. The main drivers appear to be Federal Reserve (Fed) commentaries suggesting that US interest rates are set to remain high, and higher-than-expected inflation readings in Europe. 

Minneapolis Fed President Neel Kashkari surprised markets on Tuesday when he said Fed officials had not disregarded hiking interest rates. He then added that if the Fed did cut borrowing costs, it would be twice toward the end of 2024.

Meanwhile, German and Spanish inflation data showed higher-than-expected readings in Europe, which reduces the probability that the European Central Bank (ECB) will follow their widely publicized June interest rate cut with a string of further cuts.

The preliminary Harmonized Index of Consumer Prices (HICP) in Germany rose by 2.8% year-over-year in May, beating economists’ expectations of 2.7% and the previous 2.4% reading, data from Eurostat showed on Wednesday.  

According to data released on Thursday, the preliminary HICP in Spain rose by 3.8% in May, beating the 3.7% forecast and well above the 3.4% of the previous month. 

The German and Spanish data suggest that Eurozone-wide HICP will also show an above-consensus reading when released on Friday. This could prompt the ECB to put the breaks on lowering interest rates in order to manage persistent inflationary pressures


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