Gold Price Dips on Waning Rate Cut Hopes

London: 5 February 2024 (TraderMade): Gold prices fell to a one-week low on Monday, 5 February, as better US jobs data and cautious commentary from Federal Reserve Chair Jerome Powell cast doubt on early rate cuts. This strengthened the US dollar and pushed bond yields higher, making gold less attractive.

Gold prices experience a second consecutive session of decline amid investor shifts in expectations about Federal Reserve policy.

Robust US non-farm payroll data for January suggests the Fed might maintain current interest rates through spring, dimming hopes for earlier cuts.

Since 12 January, Gold (XAUUSD) has experienced a volatile few weeks.

• Gold price dipped to a low of 2001.866 on 17 January.
• However, it reached a high of 2065.52 on 1 February, exceeding its January high of 2062.0698.
• As of 5 February, at around 12:28 PM GMT, it traded at 2025.5549, suggesting a slight upward trend after its recent dip.

Key Factors Weighing on Gold

Strong Labor Market

January's NFP data showcased robust demand for workers and higher wage growth, indicating persistent inflation and justifying higher interest rates for longer.

Robust US Jobs Report: January's non-farm payroll data exceeded expectations, indicating continued economic strength and potentially delaying Fed rate cuts.

Fed Chair's Cautious Stance

Powell's emphasis on being "prudent" with rate cuts further dampened hopes for aggressive monetary easing. The Fed indicates a narrative of maintaining "higher interest rates" at least in the first half of 2024, as articulated by Governor Bowman.

Investors await further clues on Fed policy direction from upcoming remarks by various Federal Reserve officials.

Strengthening Dollar and Yields

Dollar Strength: The US dollar index strengthened to 104.00, making gold more expensive for non-dollar investors.

Yield Spike: Benchmark 10-year Treasury note yields rose above 4%, reducing the allure of non-yielding assets like gold.

Market Outlook

• Rate Cuts Fade: CME FedWatch tool now sees near certainty of no rate cut in March. May cut odds remain but have decreased.
• Investors await the US ISM Services PMI: A positive reading could further support the Fed's hawkish stance and potentially weaken gold further.
• Gold's Path Uncertain: Gold's future trajectory hinges on data, upcoming Fed commentary, and overall market sentiment towards risk assets.

To Summarize

Gold remains under pressure due to revised Fed monetary policy timeline expectations. Continued focus remains on upcoming data and pronouncements from the Fed for further directional cues.