Gold Loses Its Shine On Various Forces
London: 23 January 2024 (TraderMade): Gold's early Tuesday sparkle, ignited by Middle Eastern flashpoints and China's economic woes, gives way to a cautious glint as US bond yields climb. The prospect of a later-than-expected rate cut by the Federal Reserve, fueled by robust economic data, is throwing cold water on the precious metal's rally.
During the last week, the XAUUSD pair peaked on 19 January to $2039.45654/ounce. Even today, it reached a high of $2037.95996/ounce, and finally, at about 01:22 PM GMT, it is a $2027.665/ounce (slipped by 0.51%).
Gold Market Crossroads: Key Takeaways
Headwinds: Rising US bond yields and delayed Fed rate cuts. Tailwinds: Geopolitical tensions in the Middle East, China's economic slowdown and potential safe-haven demand Key catalysts: Upcoming data releases (global PMIs, US GDP, core PCE) and European Central Bank meeting and policy decision
Headwinds and Tailwinds Collide
Bond Yields on the Rise
The benchmark 10-year US Treasury yield flirts with December's high, making non-yielding gold less attractive than interest-bearing assets.
Fed's Stance Shifts
Market participants scale back bets on an aggressive Fed easing cycle, with March rate cut chances falling from 80% to 40%. This dampens gold's appeal as a hedge against inflation.
Delayed Fed Rate Cut Bets: The market, initially anticipating a March rate cut, now pushes the possibility back to May based on robust US economic data. This sent US bond yields soaring, acting like kryptonite for gold's upward trajectory.
Dollar Strength Takes a Pause: A slight dip in the US dollar, thanks to the post-Bank of Japan meeting Yen (JPY) rally, provided temporary support for gold, preventing a complete meltdown. A mildly weaker US Dollar cushions gold prices, limiting the downside.
Geopolitical Tensions Linger
The drumbeat of conflict in the Middle East, especially the escalating Israel-Hamas situation, offers a countervailing force, reminding investors of gold's safe-haven status. The specter of further clashes in the region, particularly the US and UK joint airstrikes against Houthi rebels in Yemen, fanned safe-haven demand for gold.
China's Economic Malaise
Concerns over China's economic slowdown, further amplified by the recent property market woes, also drove investors towards the safe haven of gold. China's Woes Add Fuel: concerns about China's economic slowdown add further uncertainty to the global outlook, potentially boosting gold's safe-haven demand.
A Cautious Wait-and-See Approach
With mixed signals in play, traders are adopting a wait-and-see approach. This week's key data releases, including global PMIs, US GDP, and core PCE inflation, hold the potential to tip the scales. The highly-anticipated European Central Bank decision could inject further volatility, influencing gold's trajectory.
