Gold Drops as Hopes for US Fed Rate Cut Fade

Gold prices witnessed a decline on Monday as expectations for early interest rate cuts this year diminished. The focus has now shifted to the US Federal Reserve policy meeting and the upcoming release of nonfarm payroll data to further clarify monetary policies.

By 3:34 am GMT, spot gold had dropped 0.5% to $2,327.09 per ounce, while US gold futures were down 0.4% to $2,338.30 per ounce.

"Short term, gold is facing some challenges given the likely delayed timeline for rate cuts,"  says Tim Waterer, chief market analyst at KCM Trade. He adds that if gold can maintain its position in the range of $2200–$2350, it will be well-positioned to capitalize on any potential downturn in US macroeconomic data in subsequent quarters.

The markets are keenly awaiting two key events this week: the Federal Reserve's policy meeting scheduled for April 30-May 1 and the release of non-farm payroll data due on Friday. The consensus view predicts that the Fed will maintain its benchmark interest rates between 5.25% and 5.5%.

If Jerome Powell expresses hawkish sentiments during this week's meeting and there is another strong jobs report, Waterer suggests that gold may face testing times towards certain key support levels on the downside.

Investors have currently priced in just one rate cut for this year, which they anticipate will take place in November, according to CME's FedWatch tool, after considering recent sticky U.S. inflation data and hawkish statements from various Fed officials, including Powell himself.

Higher interest rates tend to diminish the appeal of holding onto non-yielding assets such as gold.

Citi research highlighted a few important points, stating, "A seasonal pullback in regional demand is probable into mid-2024." However, it also added that "a structurally stronger consumption trend via retail channels and the People's Bank of China is supportive of a higher gold price floor." It also predicts that fears over Chinese Yuan devaluation might boost local buying, thereby strengthening its case for $3000 per ounce of gold in the next 12–15 months.

On another note, spot silver was up by 0.3% to $27.24/oz, platinum rose by 0.5% to $919.95/oz, and palladium experienced a slight gain of 0.1% to reach $954.94/oz.

In conclusion, gold prices slipped on Monday due to dampened hopes for early interest rate cuts this year, while all eyes have now turned towards important events such as the US Federal Reserve policy meeting and nonfarm payroll data release scheduled later this week, which are expected to provide further clarity regarding monetary policies.