Gold price retreats from record high on hawkish monetary stance
TLDR
- Gold prices dropped below $2,400 after hitting a record high of $2,450 earlier in the week, influenced by profit-taking ahead of the Federal Reserve Meeting Minutes release.
- The Federal Open Market Committee meeting minutes indicated officials' satisfaction with current policy positioning but readiness to tighten further if needed, impacting gold's appeal as an inflation hedge amidst potential interest rate rises.
- XAU/USD traded at $2,349, declining over 1% from its daily peak of $2,426, reflecting market reactions to the minutes and interest rate dynamics.
Gold prices dropped on Wednesday, falling below the $2,400 mark after hitting the record high of $2,450 on Monday, as traders took profits ahead of the release of the latest Federal Reserve Meeting Minutes.
The minutes from the two-day Federal Open Market Committee meeting, which concluded on May 1, revealed that officials grew more concerned at their most recent meeting about inflation, with members indicating that they lacked the confidence to move forward on interest rate reductions.
Gold, traditionally seen as an inflation hedge, becomes less attractive when interest rates rise because higher rates increase the opportunity cost of holding non-yielding assets like bullion. The XAU/USD traded at $2,349, down over 1% from its peak of $2,426 earlier in the day.
Key Takeaways
The Federal Open Market Committee (FOMC) voted unanimously to maintain the benchmark short-term borrowing rate in the range of 5.25%-5.5%, the highest level in 23 years, where it has remained since July 2023. Since the meeting, there have been incremental signs of progress on inflation. The consumer price index (CPI) for April indicated an annual inflation rate of 3.4%, slightly below March's level. Excluding food and energy, the core CPI was 3.6%, the lowest since April 2021. Despite these improvements, consumer surveys reflect increasing worries about the economic outlook.
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