Gold prices rise as dollar weakens ahead of Fed decision.

On Wednesday, gold prices increased due to the weakening of the dollar as the world waits for the Federal Reserve’s decision. The slowing of US inflation solidified expectations that interest rates would remain unchanged, causing gold prices to rise. At 5:00 GMT, spot gold increased by 0.03% to $1,948.49 per ounce, while US gold features rose 0.2% to $1,961.70. The weakening USD was an opportunity for foreign buyers to take advantage of.

In May, the US consumer price index rose 4%, which was its smallest annual increase in two years. However, it was higher than the Federal Reserve’s target of 2%. This suggests that inflation has recently moderated, leading the Federal Reserve to consider pausing on interest rate hikes. Clifford Bennett, a chief economist at ACY Securities, noted that “the Fed, while it may pause at this meeting, will certainly maintain a tightening bias for the foreseeable future (given core CPI is at 5.3%).”

Gold Prices Move Up While Fed Pauses on Interest Rates Hike

Notably, the Fed’s recent meeting ended with no expected rate hike. This was their first meeting in 15 months, held on Tuesday, June 13th. According to CME’s FedWatch Tool, the markets are betting on an 80% chance that the US central bank will keep the current rates. Most analysts and traders expect the Federal Open Market Committee (FOMC) to vote to maintain the rates as they are.

However, there is a possibility of an increase in the coming month. In a note to clients, a Goldman Sachs economist wrote that “the Fed leadership has signaled that it sees pausing as the prudent course because uncertainty about both the lagged effects of the rate hikes it has already delivered and the impact of the tighter bank credit increases the risk of accidentally overtightening.”

The chief economist commented:

“Growing realization that the Fed is unlikely to cut rates for the rest of this year has seen a lot of investors exit the gold market of late. The price action in the recent range has been a cause for caution, but it does look as though the buy side is going to win out in this epic struggle.”

Nicholas Frappell, the global head of ABC Refinery, believes that the Fed will determine gold prices. While he said the current bullish move would likely last for some time, Frappell added that the Fed’s decision could cause changes.

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