After briefly crossing the $1300 per troy ounce thresholder earlier in the month, gold prices are once again on the retreat on the back of rising speculation of further policy tightening from the US Federal Reserve. Although not guaranteed, recent comments from officials combined with the Meeting Minutes from the April FOMC gathering indicate that the US Central Bank is considering raising rates in a “live” June meeting if economic data continues to support the tightening narrative. However, going forward, gold prices will be highly sensitive to changes in the US dollar as the Fed focuses on data dependency, namely employment in the coming weeks.With inflation inching back towards the target range and the most recent US dollar rally still in an early phase, any raised speculation of rate hikes will translate to downward momentum in gold prices over the near-term.

Old News

The latest Federal Reserve Meeting Minutes did have a pronounced and outsized impact on momentum in precious metals prices after the latest release, but it needs to be taken in context. For one, the Meeting Minutes were indicative of economic circumstances nearly a month ago when the Open Market Committee was meeting to discuss fundamentals and the path of interest rates using all available tools and data at their disposal. However, since the meeting, there have been a multitude of disappointments, namely the weak nonfarm payroll figure and rapidly rising initial jobless claims which have jumped to the highest rates in over a year, at 278,000 last week and 294,000 a week earlier. Should this trend persist, nonfarm payrolls might be cueing up for a disappointing May reading, a development that could derail current rate hike expectations.

While the employment backdrop may not be as supportive of further monetary tightening considering recent events, improving inflation conditions may be the missing piece of the puzzle for policymakers. According to the most recent reading of consumer prices, headline annualized inflation rose to a 1.10% pace in April from the 0.90% reported back in March. Although not the preferred gauge of inflation for Federal Reserve officials, it does give credence to the idea that the US is managing to sidestep the deflationary forces impacting many other advanced economies. A further pickup that inches back towards the Federal Reserve’s 2.00% target is likely to add to speculation of a rate hike in the upcoming FOMC Meetings.Even though most of the commentary coming from Fed policymakers has been hawkish in nature, emphasizing the “live” nature of the June meeting, some voting members are not as convinced.