Gold Prices Plummet Amid Volatility, Eyes on Fed Decision
The gold market is expected to remain volatile, with the Federal Reserve's interest rate decision and Chairman Powell's remarks being the key factors influencing the precious metal's direction. Geopolitical risks and a weaker USD are driving investors to gold, but a stronger dollar and reduced expectations for Fed cuts are weighing on prices.
Gold prices have declined by nearly 7% in the past 10 days, dropping from $3,500 to $3,205, due to selling pressures in China and a stronger dollar, with the precious metal's direction heavily dependent on the Federal Reserve's interest rate decision and Chairman Powell's remarks.
The recent decline in gold prices may have been triggered by the May labour holiday in China, which led to increased selling pressures. Despite some optimism regarding a possible trade deal, gold still faces downside risks, and a break below $3,168 could signal a drop to $3,125. The US labour market has shown resilience, with the addition of 177,000 jobs in April, and the unemployment rate remaining steady at 4.2%.
The Eurozone is expected to prioritize economic growth and may reduce interest rates by 25 basis points, while the Bank of England is likely to maintain its current rates. The dollar's strength and reduced expectations for Fed cuts are bearish for gold, while a firmer dollar and muted physical demand are also weighing on prices. However, geopolitical risks, including the ongoing Russia-Ukraine war and Middle East conflict, are driving investors to the precious metal.
The Federal Reserve's two-day policy meeting starting on Tuesday will be closely watched for insights into future monetary policy. Gold price technicals show a mixed setup, with a bounce from the $3,200 neighborhood but caution ahead of a potential extension of the recent pullback from the $3,500 mark. A dovish tone from Powell could reverse the bearish setup, but a lack of fresh catalysts favors sellers unless Fed rhetoric or incoming data reignites rate cut speculation.
As the gold market navigates through a critical week for Fed policy clarity, investors are keeping a close eye on the developments, with the precious metal's price standing firm near daily high, benefiting from safe-haven demand and a weaker USD. The outcome of the Fed's decision will have significant implications for the gold market, and investors are advised to stay cautious and monitor the situation closely.