Exploring the nuanced factors behind the decline: the Fed's cautious stance, economic data and global market outlook.
Gold's shine faced a temporary setback on Monday. Meanwhile, hopes that the Federal Reserve would cut interest rates in March diminished. The fall in gold prices developed against the backdrop of traders. They are currently eagerly awaiting key US economic data and important central bank policy meetings scheduled for this week.
Gold prices are affected
Spot gold fell 0.4% to $2,021.39 per ounce. At the same time, US gold futures saw a 0.3% drop to $2,023.20. Market sentiment changed as optimism over a rate cut in March faded. The change prompted a reassessment by traders and analysts.
Carlo Alberto De Casa, market analyst at Kinesis Money, expressed his opinion on the current market movements. He highlighted the asymmetry between central bank statements and market prices. Furthermore, he noted that he had realized that the market had been too optimistic about the central bank's possible rate cut decisions.
The Impact on the US Dollar and Treasury Yields
The US Dollar Index saw a marginal decline of 0.1%, accompanied by a drop in the benchmark 10-year US Treasury bond yields from their highest position of the month. The drop in gold prices follows a significant 1% drop the previous week. It therefore marks the most substantial weekly drop in six weeks. Federal Reserve officials, cautious about making judgments on rate cuts, expressed the need for more inflation data. Additionally, they clarified that any decision to initiate rate cuts could be considered in the third quarter, contributing to the bearish sentiment.
Market Expectations: CME FedWatch Tool
Traders now estimate a 43.5% chance that the Fed will implement interest rate cuts in March, according to the CME FedWatch tool. Additionally, the upcoming US preliminary PMI report, fourth quarter GDP advance estimates and personal consumption expenditure data are expected to be crucial signals for understanding the future direction of interest rates.
The fall was not exclusive to gold:
- Spot silver fell 2.2% to $22.10 an ounce.
- Platinum lost 0.7% to $892.46.
- Palladium fell 2.9% to $918.83.
According to a note from UBS, they predict that the price of platinum will slightly exceed that of palladium in the near future. The projection arises from the expectation that platinum supply will be short by 300,000 ounces in 2024, driven by the substitution of palladium for platinum in automotive catalysts.
Forecast and Technical Analysis
The near-term forecast for gold prices is tilted lower, influenced by the changing outlook for Federal Reserve rate cut expectations. Therefore, the recent change in market sentiment, the delay in planned rate cuts and the lower probability of a rate cut in March contribute to limiting gold's upside potential in the near term.
Featured events of the week
- Gold (XAU/USD) is trading just below the 50-day moving average of $2021.50.
- The asset is trading above the 200-day moving average of $1,963.65, providing a potential support level.
- The current price is situated between minor support at $2009.00 and minor resistance at $2067.00, indicating a consolidation phase.
- A break above minor resistance could generate bullish momentum towards the major resistance at $2,149.00, while a fall below the minor support could test the major support at $1,952.21.
The path of gold: balancing expectations and uncertainties
The recent gold market crash serves as a reminder of the intricate interplay between market expectations, economic indicators and global uncertainties. As traders await the release of key data and decisions from central banks, the direction of gold prices remains under close observation, with potential for both bullish and bearish moves.
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