SUPERNEWS

Macro

Gold Nears $2,330/Oz, Up 5% Before Hawkish Fed Meet

Gold Nears 5% Monthly Gain as Hawkish Fed Outlook Adjusts Global Rate Cut Expectations

By Bill Bullington

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4/29, 22:05 EDT
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Key Takeaway

  • Gold eyes third consecutive monthly gain, trading around $2,330/oz, buoyed by central bank purchases and haven demand.
  • Fed's upcoming meeting could impact gold with a hawkish stance anticipated; swaps traders expect at most two rate cuts by year-end.
  • Bullion's 13% rise this year also supported by strong Asian demand, geopolitical tensions, and a recently weaker US dollar.

Gold's Steady Climb Amid Hawkish Fed Outlook

Gold has maintained its upward trajectory, trading steady at around $2,330 an ounce in early Asia hours, marking a nearly 5% increase for the month. This rise comes despite expectations of a hawkish pivot from the Federal Reserve in its upcoming rate-decision meeting. The anticipation of higher-for-longer interest rates, fueled by recent hotter-than-expected inflation data, contrasts with Fed Chair Jerome Powell's previous hints at swifter rate cuts. Swaps traders have adjusted their expectations, now foreseeing at most two rate cuts by year-end, the fewest since November 2023. This adjustment reflects the broader market sentiment that higher interest rates, which typically dampen gold's appeal, might persist.

Adjusted Global Rate Cut Expectations

The recalibration of rate cut expectations isn't confined to the United States. Persistent inflation pressures have led to a global reassessment of monetary easing timelines, particularly within the European Central Bank (ECB) and the Bank of England (BoE). James Knightley, chief international economist at ING, pointed out the global implications of the Fed's inflation challenges, suggesting potential repercussions for the European economy due to dollar strength. Consequently, the market now anticipates less aggressive rate cuts from both the ECB and BoE, with the ECB's expected rate cuts adjusted to about 0.7 percentage points this year, a significant reduction from earlier forecasts.

Divergence in Monetary Policy

Despite the global trend towards delayed rate cuts, senior officials from the ECB and BoE have highlighted differences in their inflation scenarios compared to the US, suggesting a potential for earlier rate reductions in Europe. However, recent US data showing a 2.7% inflation rate for the year to March has tempered expectations for swift rate cuts, with some market participants even betting on Fed rate hikes within the next 12 months. This divergence in monetary policy outlooks underscores the complex dynamics between inflation rates, exchange rates, and central bank strategies across major economies, influencing gold's appeal as a safe-haven asset.