Gold slips as resurgent dollar weighs, but Fed rate cut bets underpin

Gold prices edged lower on Friday, but remained elevated amid bets for Fed rate cuts in 2024.

Gold slips as resurgent dollar weighs, but Fed rate cut bets underpin

While silver has faltered in the face of a resurging US dollar, gold has largely held its ground over the past few days of high volatility in the markets. On Friday, gold prices dipped due to the strengthening dollar, after reaching a new record high of $2,222 per ounce on Thursday.

The Federal Reserve's indication of a higher bar for imminent interest rate cuts fueled gold's rally, as market pricing for 2024 easing was pared to around 80 basis points, despite recent high inflation readings. Fed Chair Jerome Powell stated on Wednesday that the elevated inflation data had not altered the overall narrative of slowly easing US price pressures.

Spot gold traded 0.4% lower at $2,175.50 per ounce as of 06:15 GMT. The dollar advanced to a three-week high against its rivals, positioning itself for a second weekly rise and making gold more expensive for holders of other currencies.

DXY: Dollar strengthens as SNB surprises with rate cut
Currency markets were roiled as the Swiss franc plunged after a surprise SNB rate cut, while the yen slid despite the BOJ’s policy pivot.

While impending rate cuts are generally supportive of gold prices, providing a floor for the yellow metal once the rate-cutting process commences, gold currently finds itself in extremely overbought conditions. This could trigger a near-term cooling of its recent rally, with the $2,150 level emerging as an immediate support level to watch.

The non-yielding nature of gold tends to benefit the precious metal when interest rates decline, as it reduces the opportunity cost of holding bullion. Fed funds futures traders are pricing in a 74% probability that the Federal Reserve will begin cutting rates in June, according to the CME Group's FedWatch Tool.

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