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"dilemma"! Gold prices hover near 2040 mark amid disagreements over Fed's monetary policy vision

2023-12-20

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In early Asian trading on Wednesday (December 20), precious metals traded sideways as Federal Reserve policymakers downplayed interest rate cut discussions and turned their focus to how long interest rate limits will last to reduce inflation to 2%.

As of press time, spot gold is currently trading at $2,041.02 per ounce, an intraday increase of 0.04%.

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Gold prices are struggling to find direction and further gains appear imminent. As expectations of three interest rate cuts in 2024 deepen and inflation makes significant progress towards 2%, the dollar falls and precious metals are expected to continue to profit.

Federal Reserve policymakers have described the recent rise in gold prices as "exaggerated" as the central bank is focusing on how long monetary policy can last and should keep tightening policy to achieve price stability rather than lower borrowing rates now. This week, gold price action will be guided by U.S. durable goods orders and the core personal consumption expenditures price index (PCE).

Gold prices struggled in one direction after recovering from $1,980.00 as Federal Reserve policymakers de-emphasized interest rate cut discussions and said discussions were conditional if inflation continues to improve.

The next stage in the price stability agenda is to focus on the persistence of high interest rates so that price stability can be achieved in a timely manner, Mester said in an interview on Monday.

Mester said the market took particular advantage of the last part of Fed Chairman Powell's comments in the rate policy announcement, when he discussed expectations for three interest rate cuts in 2024.

On the contrary, San Francisco Fed President Daly said that due to significant improvement in inflation this year, a rate cut in 2024 is appropriate.

Daly said her forecast was in line with the Fed's median forecast for a 75 basis point (bps) cut in borrowing costs in 2024. She added that the Fed must ensure that price stability does not come at the expense of rising unemployment.

Last week, Atlanta Fed President Bostic said he expected two interest rate cuts in 2024, starting in the third quarter. Bostic warned that it would take "several months" for policymakers to accumulate enough data to build confidence in exiting a restrictive monetary policy stance.

Meanwhile, the U.S. dollar index continues to trade sideways around 102.50, with November durable goods orders and core PCE price index due out later this week.

The U.S. dollar index continued its slight rebound following comments from New York Fed President Williams. Williams said it was premature to speculate on rate cuts because the central bank was not talking about cutting rates yet.

Meanwhile, the 10-year U.S. Treasury yield fell further to 3.91% as hopes grew that the Federal Reserve would exit its tightening interest rate stance in 2024.

Given that interest rates will be lower in 2024, gold prices are expected to continue rising for an extended period of time.

Technical Analysis: Gold prices trade sideways near $2,040

Gold prices are trading back and forth around $2,040 due to the lack of potential economic triggers ahead. The precious metal has gradually pulled back this week but remains above the 20-day exponential moving average (EMA), which indicates a bullish short-term trend. A decisive break above $2,050.00 could lead to further gains towards $2,100.00.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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"dilemma"! Gold prices hover near 2040 mark amid disagreements over Fed's monetary policy vision

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