Macro

Gold Falls to $2370 as Fed Maintains Cautious Stance on Rate Cuts

Gold prices drop to $2,370 as Fed minutes suggest prolonged high interest rates, reducing market expectations for rate cuts.

By Barry Stearns

5/23, 10:15 EDT
S&P 500
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Key Takeaway

  • Gold prices fell to $2370 per ounce after the Fed's cautious stance on monetary policy, reducing expectations for imminent rate cuts.
  • The market now expects only one rate cut this year, keeping US interest rates at 5.5% for an extended period.
  • Technical analysis indicates potential further declines in gold prices to 2322, with possible corrective rebounds along the way.

Gold Prices Decline

Gold prices fell to $2,370.00 per troy ounce by Thursday, driven by the release of the latest US Federal Reserve meeting minutes. The Fed's cautious tone indicated that more time is needed to be confident that US inflation is declining towards the 2% target. This sentiment has tempered market expectations of imminent interest rate cuts. Previously, the market anticipated two rate cuts in September and December; now, it expects no more than one. Consequently, the US interest rate is likely to remain at 5.5% per annum for an extended period before the Fed considers revising it. Higher interest rates reduce the attractiveness of gold, which does not yield interest, contributing to the recent decline in gold prices.

Technical Analysis of XAU/USD

On the H4 chart, XAU/USD has formed a downward impulse to the level of 2404.40, followed by a correction to 2433.90. The limits of the consolidation range are now well-defined, and the market has recently broken out downwards. This breakout opens the potential for a further decline to 2322.00. After reaching this level, a rebound to 2385.35 is expected. This scenario is technically supported by the MACD indicator, with its signal line above zero but directed strictly downwards towards new lows. On the H1 chart, a decline to 2385.00 has been executed, followed by the formation of a consolidation range around this level. The market has recently broken out downwards from this range, opening the potential for a further decline to 2337.35, which is the local target. Following this, a correction back to 2385.00 (testing from below) is possible. Further decline towards 2321.45 may follow. This scenario is technically confirmed by the Stochastic oscillator, with its signal line above 20 and poised to rise to 50 before another potential decline to 20.

US Stock Market Reaction

On Wednesday, May 22, U.S. stock markets closed lower as the three major indexes fell following the release of Fed minutes, revealing disappointment with recent inflation data and expectations of prolonged disinflation. In economic data, U.S. existing home sales declined by 1.9% month-over-month in April, reaching an annualized rate of 4.14 million units, compared to the revised 4.22 million units in the previous month. The May Federal Open Market Committee minutes revealed a sobering outlook, highlighting prolonged high interest rates due to persistent inflation concerns, doubts about current policy effectiveness, and a willingness to tighten policy further if necessary. Most S&P 500 sectors closed lower, with utilities, energy, and materials suffering the largest losses, while healthcare and industrial stocks closed higher. The Dow Jones Industrial Average was down 0.51% and closed at 39,671.04. The S&P 500 declined 0.27%, ending the day at 5,307.01, and the Nasdaq Composite slid 0.18%, finishing the session at 16,801.54.

Global Market Overview

On Thursday, Japan’s Nikkei 225 gained 1.28%, ending the session at 39,112.00, led by gains in the Finance & Investment, Insurance, and Communication sectors. Japan’s manufacturing sector unexpectedly expanded in May, with the au Jibun Bank PMI rising to 50.5 from 49.6 in April, marking the first growth since June 2023 and offsetting a slight services decline. Australia’s S&P/ASX 200 index closed lower by 0.46% at 7,811.80, led by losses in the Gold, Metals & Mining and Materials sectors. India’s Nifty 50 was up 1.57% at 22,952.45, and the Nifty 500 closed higher by 1.15% at 21,481.50. China’s Shanghai Composite was down 1.33%, ending the session at 3,116.39, and the Shenzhen CSI declined 1.16%, closing at 3,641.79. Hong Kong’s Hang Seng ended the session lower by 1.70% at 18,868.71. The European STOXX 50 index was up 0.36%. Germany’s DAX gained 0.21%. France’s CAC rose 0.15%. U.K.’s FTSE 100 traded higher by 0.02%.