Gold prices under pressure as Fed officials warn of possible interest rate hike

LONDON (May 16) Gold prices remain within a tight range but continue to face pressure as several Federal Reserve officials issue warnings regarding the potential for further interest rate increases. The central bank's concerns stem from relatively high inflation and a robust labor market, prompting caution among traders and investors.

In the previous session, gold experienced some gains; however, they were limited as traders adopted a wait-and-see approach in anticipation of a series of key U.S. economic readings scheduled for this week. The week kicks off with the release of retail sales and industrial production data later in the day, followed by additional speeches from various Fed officials. Of particular interest will be Chair Jerome Powell's remarks on Friday.

Despite these factors, gold has managed to hold its support level at $2,000. The yellow metal continues to benefit from safe-haven demand, driven by concerns over a potential U.S. economic slowdown this year.

During the Asian session, spot gold XAUUSD fell 0.1% to $2,014.82 per ounce, while gold futures declined 0.2% to $2,019.35 per ounce.

During separate addresses, four regional Fed presidents highlighted that although the central bank has made some progress in combatting high inflation over the past year, more work is needed to meet the target of 2% annual inflation. While the Fed previously signalled the possibility of a pause in its rate hike cycle, officials now express uncertainty about whether such a pause will occur in June.

Minneapolis Fed President Neel Kashkari cautioned against being swayed by a few months of positive data during his address at the Minnesota Transportation Conference & EXPO. He emphasized that the U.S. economy still exceeds the 2% inflation target, underscoring the need to continue efforts to achieve the desired outcome.

Moreover, Fed officials downplayed the likelihood of any rate cuts by the central bank this year. Market indicators, such as Fed Fund futures prices, currently suggest a 79.9% probability that the Fed will pause its rate hikes in June.

The potential for higher U.S. interest rates does not bode well for non-yielding assets like gold. Increased rates raise the opportunity cost of holding bullion. However, the yellow metal finds support from fears of a U.S. recession and the possibility of a banking collapse, as investors seek safe-haven assets.

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