Gold Loses Luster: Second Weekly Dip as Rate-Cut Bets Rethink

London: 16 February 2024 (TraderMade): Gold prices are poised for a second consecutive weekly decline, reflecting a shift in investor sentiment away from rate cuts and back towards inflation concerns. This comes after a surprisingly hot US consumer price report surprised everyone and dampened hopes for the Fed's early easing of interest rates.

Key Takeaways

• Gold prices are down over 1% this week ($2006.9446 per ounce at press time)
• Robust US CPI data reignites inflation worries
• Fed official suggests potential for two rate cuts later in 2024
• US retail sales see the highest monthly drop since February 2023

Hawkish Fed, Hot Inflation Put Brakes on Gold Rally

Gold's initial enthusiasm about potential rate cuts faded quickly after the US consumer price index (CPI) was hotter than expected, highlighting persistent inflationary pressures. This pushed investors back towards the US dollar, a traditional safe haven during economic uncertainty - and away from Gold.

Gold (XAUUSD): Testing Support Amidst Mixed Signals

Gold prices have been on a rollercoaster in the past two weeks, reflecting broader market uncertainties. Here's a breakdown:

Recent Performance

• Opened February at $2039.69 but closed down over 2% at $2004.43 on 15 February.
• Briefly touched $2057.69 early in the week but struggled to hold gains.
• Currently trading around $2006.95 in a narrow range.

Key Drivers

• Mixed signals from Fed: Hawkish comments from some officials and robust inflation data cast doubt on early rate cuts, pushing Gold down.
• Geopolitical tensions: Recent events in the Middle East added some safe-haven support, limiting the decline.
• Technical analysis: Gold is testing key support levels around $2000 - a breach could signal further downside.

Overall Outlook

The near-term trajectory of Gold remains uncertain. Mixed signals from the Fed and ongoing geopolitical tensions create a volatile environment. Technical analysis suggests the potential for further decline if support breaks.

Retail Sales Slump Offers Glimmer of Hope

While inflation woes dampen investor spirits, a sharp decline in US retail sales brought hope. The highest monthly drop since February 2023 suggests weakening consumer demand, potentially prompting the Fed to reconsider its hawkish stance.

Fed's Rate Cut Trajectory Remains Unclear

Atlanta Fed President Bostic threw another wrench into the mix by indicating two potential rate cuts later in 2024, lower than the Fed's projections. This adds further uncertainty to the monetary policy outlook, making Gold prices uncertain.

Eyes on Upcoming Data

Market participants await the US producer price index (PPI), housing starts, and Michigan consumer sentiment data for further clues about the Fed's future actions and their impact on gold prices.

Summary

Gold's recent rally has stalled as worries about inflation overshadow hopes for early rate cuts. While economic data like declining retail sales offer hope, the overall outlook remains uncertain. Market participants should closely monitor upcoming economic releases and the Fed's policy pronouncements to gauge the future direction of gold prices.