On Tuesday (June 25th), spot gold prices plummeted by nearly $15 due to the impact of rising US dollar and bond yields. Investors are waiting for the US PCE inflation data to be released later this week to glimpse the timing of the Federal Reserve's interest rate cut this year.

Christian Borjon Valencia, an analyst at FXStreet, pointed out that, stimulated by the hawkish comments of Federal Reserve Governor Bauman, the yield of US treasury bond bonds rose on Tuesday, the US dollar began to recover, and the gold price fell sharply after reaching the peak of 2337 US dollars/ounce this week.

The US dollar index closed up 0.13% on Tuesday at 105.66.

Spot gold fell $14.80, or 0.63%, to close at $2319.33 per ounce on Tuesday.

Federal Reserve Governor Bauman predicts that there will be no interest rate cuts in 2024 and postpones the expected rate cuts to 2025. As the most hawkish and tough Federal Reserve official at present, Bauman is one of the few decision-makers who does not expect a rate cut this year.

Federal Reserve Director Bowman stated in her speech on monetary policy and bank capital reform on Tuesday that she believes "several inflationary risks" will affect her outlook on monetary policy.

Bauman predicts that US inflation will remain high for a period of time, and there is still a certain risk of upward inflation. Therefore, it is not an appropriate time to lower interest rates at present.

In her outlook for the remaining time of this year, Bauman stated in the Q&A session that her economic forecast does not include any interest rate cuts for the remaining time of 2024; On the contrary, she postponed the previously expected interest rate cut to 2025.

In addition, Bauman stated that she is closely monitoring various sub sectors of inflation and whether there will be a deterioration in the labor market, all of which will have a significant impact on the Federal Reserve's monetary policy decisions. During Bauman's speech, the US dollar index rose strongly.

Due to her recent series of tough statements, Bauman is considered the most hawkish member among the current Federal Reserve policy makers (board+local Fed chairpersons). In addition, due to her status as a director, she has voting rights at every meeting of the Federal Open Market Committee (FOMC).

On May 17th local time, Federal Reserve Director Bauman stated that she expects US inflation to remain high and reiterated the possibility of interest rate hikes if necessary.

Waiting for US PCE data

Valencia stated that gold traders are waiting for the release of the Federal Reserve's preferred inflation indicator, the Personal Consumption Expenditure (PCE) Price Index. If the data falls below the previous value and expectations, it will reignite hope for a rate cut in the coming year.

On Thursday, the Bureau of Economic Analysis (BEA) will release the final gross domestic product (GDP) for the first quarter. On Friday, the US Bureau of Economic Analysis will release May PCE price index data, which is the Federal Reserve's preferred inflation indicator.

Economists predict that the monthly rate of the US PCE price index in May is expected to remain stable, after an increase of 0.3% in April. The PCE price index in the United States is expected to grow at an annual rate of 2.6% in May, compared to a 2.7% increase in April. The core PCE price index in the United States is expected to grow at a monthly rate of 0.1% in May, compared to a 0.2% increase in April; The core PCE price index in the United States is expected to rise at an annual rate of 2.6% in May, compared to a previous 2.8% increase.

Chicago Fed Chairman Goolsby said in an interview on Monday that he is still seeking further cooling of inflation as part of the process of initiating interest rate cuts.

How to trade gold after a sharp decline?

Valencia pointed out that the gold price still has a downward trend after forming a chart pattern of "bear devouring" last Friday. This graph further confirms the shape of the head and shoulders, indicating that the price of gold may further decline.

Valencia stated that the next support level for gold prices will be $2300 per ounce. Once this level is lost, gold prices are expected to fall to the low of $2277/ounce on May 3rd, followed by the high of $2222/ounce on March 21st. If it falls below the above level, the gold price will further decline, and sellers will aim for a head and shoulder shape target of $2170-2160 per ounce.

Valencia added that, on the contrary, if gold prices recover by $2350 per ounce, they will target key resistance levels, such as the June 7th cycle high of $2387 per ounce, and then gold prices are expected to challenge $2400 per ounce.