Explore the exact factors behind the decline: the Fed's dovish stance, economic data, and global market outlook.
Gold Glitter faced a temporary setback on Monday. Meanwhile, hopes for a rate cut by the Federal Reserve in March have diminished. The decline in gold prices was revealed on the back of traders. Currently, they are eagerly awaiting key US economic data and important central bank policy meetings scheduled for this week.
Gold prices take a hit
The spot price of gold declined by 0.4%, settling at $2,021.39 per ounce. Meanwhile, US gold futures saw a 0.3% decline to $2,023.20. Market sentiment turned as optimism about interest rate cuts in March waned. This shift has led to a re-evaluation by traders and analysts.
Carlo Alberto De Casa, Market Analyst at Kinesis Money, expressed his thoughts on the current market movements. He highlighted the asymmetry that exists between central bank data and market pricing. Furthermore, he pointed to the realization that the market was overly optimistic about potential central bank decisions to cut interest rates.
Impact on the US dollar and Treasury yields
The US dollar index saw a marginal decline of 0.1%, accompanied by a decline in benchmark 10-year US Treasury yields from their highest level in a month. The decline in gold prices comes after a significant 1% decline in the previous week. It therefore represents the largest weekly decline in six weeks. Federal Reserve officials, who are cautious about making judgments about cutting interest rates, have expressed the need for more inflation data. Furthermore, they explained that any decision to initiate interest rate cuts may be considered in the third quarter, contributing to the bearish sentiment.
Market Forecast – CME FedWatch
Traders now estimate a 43.5% chance of the Fed implementing interest rate cuts in March, according to the CME FedWatch tool. Furthermore, the upcoming US flash PMI report, advanced Q4 GDP estimates, and personal consumption expenditures data are expected to serve as crucial signals for understanding the future direction of interest rates.
The decline was not limited to gold:
- Silver in spot transactions fell 2.2% to $22.10 per ounce.
- Platinum lost 0.7 percent to $892.46.
- Palladium fell 2.9 percent to $918.83.
According to a UBS note, they expect the price of platinum to slightly surpass the price of palladium in the near future. This forecast stems from an expected platinum supply shortage of 300,000 ounces in 2024, driven by the replacement of platinum by palladium in autocatalysts.
Forecasts and technical analysis
The short-term outlook for gold prices is leaning lower, influenced by the evolving landscape of Fed rate cut expectations. Therefore, the recent shift in market sentiment, the delay in expected interest rate cuts, and the lower likelihood of a rate cut in March are all contributing to limiting gold's near-term upside potential.
Highlights of the week
- Gold (XAU/USD) is hovering below its 50-day moving average at $2021.50.
- The asset is trading above its 200-day moving average at $1,963.65, providing a potential support level.
- The current price positions are between the minor support at $2,009.00 and the minor resistance at $2,067.00, indicating a consolidation phase.
- A break above the minor resistance could spark bullish momentum towards the major resistance at $2,149.00, while a break below the minor support could test the major support at $1,952.21.
Gold Path: Balancing Expectations and Uncertainties
The recent decline in the gold market is a reminder of the complex interplay between market expectations, economic indicators, and global uncertainties. While traders await key data and central bank decisions, the gold price trend remains closely monitored, with both upward and downward movements likely.
