The price of gold (XAU/USD) turned bearish, trading at $2042 during Wednesday’s session amid cautious market sentiment ahead of the Federal Open Market Committee (FOMC) meeting minutes and important U.S. data.
Specifically the Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index for December and the Job Openings and Labor Turnover Survey (JOLTS) data for November.
In my view, gold is facing selling pressure as investors reassess their expectations for a Federal Reserve interest rate cut in March. The lack of crucial information about interest rate cuts from Federal Reserve officials in the FOMC meeting minutes will weaken gold’s attractiveness in the short term, supporting the strength of the U.S. dollar and Treasury yields.
It is expected that the ISM Purchasing Managers’ Index will show continued contraction in the U.S. manufacturing sector for the fourteenth consecutive month. Meanwhile, an increase in job vacancies by U.S. employers will indicate steady labor demand, exerting negative pressure on gold prices.
I believe that gold prices today have relinquished recent gains, turning negative due to reduced chances of the Federal Reserve cutting interest rates soon, with markets anticipating the release of the FOMC meeting minutes later today.
According to market data, the probability of a 25-basis point interest rate cut in March has decreased from 72% to 67%. The FOMC meeting minutes will provide detailed insights into the decision to keep interest rates unchanged for December for the third consecutive time. Markets will closely monitor expectations for interest rates and core inflation for 2024 and 2025.
I think that lower chances of a short-term interest rate cut may weaken gold’s attractiveness in the near term, leading to increased demand for safe-haven assets. Particularly, after Federal Reserve Chair Jerome Powell stated in the recent monetary policy statement that interest rate cuts will be a topic for future discussion, causing market mood swings and high volatility.
It is also expected today that the ISM Manufacturing Purchasing Managers’ Index will reach 47.1, indicating continued contraction in the manufacturing sector for the fourteenth consecutive month, but higher than the previous reading of 46.7. Investors will also focus on new orders for the manufacturing sector, providing clear expectations for the monetary policy in 2024.
Here, I can say that the sharp rise in U.S. Treasury bond yields has weakened the upward trend in gold prices. The yield on 10-year Treasury bonds reached nearly 4.0%, and investors fully realize that the strong U.S. economy in 2024 may delay interest rate cuts, adding further short-term downward pressure on gold prices.
Especially as the dollar index maintains its modest gains, trading near 102.48 points, where investors feel uncertainty during a week filled with important data that will determine the future of the U.S. economy and financial policy.
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