Hawkish Fed rhetoric may weigh on gold prices this week; rebound likely in 2nd half

economictimes.indiatimes.com:

Comex gold prices moved between gains and losses during the week and are poised to close relatively flat near $1,975 per troy ounce. The yellow metal declined during the first half of the week, as investors remained wary ahead of the June FOMC meeting. Despite a 1% decline in the dollar index, gold prices have not risen, as US short-term treasury yields inched higher.

Front-end rates rose after the CPI data and a hawkish FOMC meeting. Dollar and treasury yields, which tend to follow a similar path were decoupled as prospects of a nearing end to rate hikes and hawkish ECB weighed on the greenback while odds of higher rates in the near term aided yields. US CPI data showed that the headline inflation declined to 4% in May 2023, the lowest since March 2021 and slightly below market expectations of 4.1%.

Energy prices slumped while food inflation slowed. Shelter inflation continues to be a major contributor to overall inflation numbers. However, the core CPI, which excludes volatile items such as food and energy, rose by 0.4% from a month earlier in May of 2023, as did in April and March, matching market estimates.

Gold prices further weakened post the FOMC meeting, as the Federal Reserve delivered a “hawkish skip”. The Fed left the target for the funds rate unchanged at 5- 5.25% but signaled rates may go higher if the economy and inflation do not slow down more. The move marked the first pause in the tightening campaign following ten consecutive hikes that lifted borrowing costs to the highest level since September 2007.