Gold dips on diminished rate cut expectations

Gold prices dipped on Monday, dropping below $2,020 per ounce. If gold prices increase, resistance may be encountered near $2,065 per ounce, while if gold prices decline, support may be encountered near $2,010 per ounce. 

Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar surged on Monday, touching the 104.5 level. US treasury yields also gained strength on hawkish Fedspeak, with the US 10-year bond yielding approximately 4.15%.                   

The Fed kept interest rates unchanged at its monetary policy meeting last week within a target range of 5.25% to 5.50%. The Fed, however, has removed the tightening bias from its policy statement, indicating that the central bank is preparing to pivot to a less restrictive monetary policy, boosting gold prices.

The US dollar and treasury yields surged on Monday, putting pressure on gold prices after Powell delivered a hawkish interview at CBS’s show ’60 Minutes’ on Sunday. Powell stated that the Fed will only proceed with interest rate cuts once they see evidence that inflation is dropping sustainably. Powell reiterated his former statement that a rate cut in March is highly unlikely and warned that the central bank will likely cut rates at a slower pace than the market expects. 

Rate cut expectations dropped sharply after Powell’s speech. Odds of a rate cut in March have dropped to 10%, while even rate cut odds in May are down to 60%. Most market analysts, however, believe that the central bank will start cutting interest rates by June. 

Gold prices are propped up by rising geopolitical tensions, which raise the appeal of safe-haven assets. Concerns that the Geopolitical crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets, boosting gold prices. The war between Israel and Hamas is threatening to spill over the Middle East as tensions rise in the Red Sea area. Attacks on ships in the Red Sea area by Yemen's Iran-backed Houthi militia increase concerns that the crisis will widen to other areas in the region. The US and the UK have launched a coordinated action against Houthi rebels in Yemen. 

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Written by:
Myrsini Giannouli

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