Market players have moved gold prices higher in the last two weeks in anticipation that the Federal Reserve will not raise its benchmark interest rate at the next FOMC meeting, which concludes on Wednesday, June 14.

The gold price slipped below $1,950 at the start of the week as investors digested the outstanding May jobs report from the United States, which revealed that Nonfarm Payrolls surged 339,000, significantly exceeding the market consensus of 190,000 by a wide margin. However, the US Dollar (USD) came under selling pressure in the second half of the day when the ISM Services PMI survey suggested a lack of momentum in service sector activity. Furthermore, the publication revealed that the Prices Paid Index fell to 56.2 from 59.6, while the Employment Index fell to 49.2 from 50.8, indicating milder input inflation and a decrease in sector payrolls. The bearish statistics caused the XAU/USD to regain traction, and gold ended the day in positive territory.

While Gold slumped as a result of the surprise interest rate hike by Bank of Canada on Wednesday, the disappointing Initial Jobless Claims data again lifted the yellow metal and ended in a narrow channel around 1960 level on Friday.

Next week the markets will pay attention to CPI data as well as any other hints about whether Feds will raise interest rate or pause interest rate hikes.

It’s difficult to predict the impact of the Fed’s rate decision on gold prices until we see how May inflation data affects market pricing. At this time, the CME Group FedWatch Tool indicates that markets are pricing in a greater than 75% chance of the Fed maintaining its policy rate in the 5-5.25% range.

If inflation data reveals no change in interest rates, a 25 basis point hike would be viewed as a hawkish surprise, boosting the USD and US bond yields, resulting in a dramatic decrease in XAU/USD. Gold, on the other hand, is likely to rise if the Fed does not raise interest rates despite May’s positive CPI numbers.

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