The gold market experienced a lackluster start to the week as the U.S. dollar strengthened, and investors braced themselves for a series of policy decisions from major global central banks, including the Federal Reserve, in the coming days.
On Monday at 10:30 a.m. WIB (Western Indonesian Time), spot gold prices slipped 0.4% to $2,147.89 per ounce troy. Similarly, U.S. gold futures fell 0.5% to $2,151.3 per ounce troy.
"A fairly hawkish outcome from the Fed has been priced in... this shows a fairly strong consensus that there may only be one or two cuts this year," said Kyle Rodda, a market analyst at Capital.com.
The Fed is widely expected to maintain interest rates at 5.25%-5.5% at the end of its two-day meeting on Wednesday. However, there is a possibility that the Fed may signal prospects for a higher policy rate for a more extended period, given the persistently elevated inflation levels observed in both consumer and producer prices.
Traders are now pricing in a 56% chance of a rate cut in June. Higher interest rates tend to diminish the appeal of holding non-yielding assets like gold.
Last week, data showed that U.S. consumer prices rose strongly in February, and producer prices increased more than expected, amid surging prices for goods such as gasoline and food.
"If we get a less hawkish outcome from the Fed, there's a reason why we would see the dollar weaken, yields lower, and that can only trigger a rally and give it a fundamental boost, and then we see the $2,200 level," Rodda said.
The U.S. dollar maintained its strength near a two-week high against its peers, making gold more expensive for holders of other currencies.
On the other hand, the Bank of Japan is expected to exit its ultra-dovish monetary policy at its two-day meeting ending on Tuesday. The Bank of England will hold its meeting on Thursday and is anticipated to keep interest rates unchanged.
As central banks globally grapple with the challenge of balancing inflation control and economic growth, their policy decisions will likely continue to shape the trajectory of the gold market in the coming weeks and months.