Steady After Yesterday’s Large Drop, Eyes On The FOMC

Gold is little changed in the Asia-Pac session, after closing 2.1% lower at $2286.25 on Tuesday.

• Bullion's drop reflected a sharp rise in US Treasury yields after Q1 ECI printed hotter than expected. The employment cost index (ECI), which is closely monitored by the Federal Reserve, rose by 1.2% in Q1 versus +0.9% est.
• The unexpected strength in inflation-related data added weight against any potential rate cuts ahead of the FOMC Policy Decision later today.
• Analysts generally look for a more hawkish message from the FOMC in May compared with March, in light of strong inflation and economic activity data. Powell is expected to tilt more cautious on the inflation outlook than in previous appearances, with potential flashpoints for markets including whether he acknowledges that 3 cuts are less likely to be the base case for the FOMC in 2024, and/or whether June is too early for the first cut.
• According to MNI’s technicals team, the 20-day EMA has given way, signalling scope for an extension towards the 50-day EMA at $2239.90.
• ETF holdings continue to pull lower, with related participants continuing to trim exposure during the rally from the early October lows.