XAUUSD - Is in a holding pattern as price action remains nuanced

Investors speculating in gold face a nuanced market. Gold prices remain neutral around $1,970/ounce, rebounding from a three-month support level at $1,939/ounce. The Federal Reserve's decision to keep interest rates unchanged caused a sell-off in gold, but it may still raise rates twice this year.

Currently, gold is behaving more like a pro-cyclical asset than a safe haven. The macroeconomic outlook is complex, so it's not as simple as lower real yields or a weaker dollar leading to higher gold prices.

Current conditions are favorable, but there is a warning to be cautious about prices. It might be wise to consider a small investment in gold. However, due to the complexity of the situation, there is no clear indication to make significant buying or selling decisions at this time.

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The fast-and-furious tightening campaign appears to be paying off. Headline CPI stood above 8% for much of last year, but now it’s running at 4.0% year-over-year.

Although the directional improvement is welcome, it should not be confused with mission accomplished; after all the current rate is still double the target while the core gauge shows extreme stickiness.

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The Fed officials' estimates on future borrowing costs are shown in a scatterplot, which is more hawkish than the version presented in March. The average interest rate forecast for 2023 has increased from 5.1% to 5.6%. The highest rate projected is 5.50%-5.75%, implying two 25 basis point hikes in the second half of the year.

For 2024, policymakers predict the federal funds rate will decrease to 4.6%. Three months ago, the central bank saw rates at 4.3%. Looking ahead to 2025, the projected benchmark rate is expected to decrease to 3.4%, lower than the March forecast of 3.1%. All of this suggests there is little desire for aggressive interest rate cuts in the coming years, given the persistent inflation.