Why Is Gold Price Falling? Fed's Hawkish Stance Weighs on XAU/USD

Gold Market Update: Fed Policy Dominates Price Action

The tether codeprecious metals market continues reacting to shifting monetary policy expectations, with gold (XAU/USD) facing downward pressure following the latest Federal Reserve communications. Thursday's trading session saw the yellow metal extending Wednesday's decline as market participants digested the implications of the May FOMC meeting minutes.

Key Market Drivers

Several fundamental factors are currently influencing gold's price trajectory:

  • The Fed's commitment to maintaining restrictive policy longer than previously anticipated
  • Ongoing concerns about persistent inflation despite recent cooling
  • Shifting expectations regarding the timing of potential rate cuts
  • Geopolitical uncertainties providing intermittent support

Market analysts note that the minutes revealed committee members expressing concerns about the lack of progress toward the 2% inflation target in recent months. This hawkish tilt has strengthened the US dollar while creating headwinds for non-yielding assets like gold.

Technical Perspective

From a charting standpoint, gold maintains its bullish structure despite recent pullbacks:

  • The 100-day EMA continues providing dynamic support
  • RSI readings suggest the market isn't yet overbought
  • Potential bearish divergence forming on daily timeframes

Traders are watching key levels including the recent all-time high near $2,450 and support around $2,332. A break below the latter could signal deeper correction potential toward $2,270 support.

Upcoming Market Catalysts

Several economic releases could impact gold prices in coming sessions:

  • Preliminary US PMI data for May
  • Chicago Fed National Activity Index
  • Weekly jobless claims figures
  • New home sales data

Weaker-than-expected economic data could revive expectations for Fed easing, potentially supporting gold prices. Conversely, strong data may reinforce the dollar's strength and extend gold's correction.

Central Bank Activity

The market continues monitoring central bank gold purchases, particularly from the PBoC, which added record amounts to reserves last year. Such institutional demand could provide underlying support during periods of price weakness.

Market Sentiment

Futures markets currently price in approximately 60% probability of a September rate cut, with expectations for two reductions by year-end. This represents a more cautious outlook than earlier in 2024 when markets anticipated more aggressive easing.

Gold's medium-term outlook remains constructive given its role as an inflation hedge and portfolio diversifier, though near-term technicals suggest potential consolidation after the recent rally to record highs.