The gold market experienced a slight dip in momentum on Friday as spot gold edged up by 0.1% to US$2,023.52 per ounce, marking its worst weekly performance in over a month with a 1.2% decrease. One reason for the weakening of gold’s rally momentum is the reduction in bets on an early interest rate cut by the United States Federal Reserve in March.
Recent data releases, including faster-than-expected inflation and strong retail sales and consumer confidence figures, have led to a decrease in expectations for an early interest rate cut. The yield on 2-year Treasury bonds, which is particularly sensitive to interest rate expectations, climbed after the latest U.S. inflation data and has shown a higher possibility for interest rates to remain stable or even rise.
This shift in sentiment has caused investors to scale back their bets on early interest rate cuts, with the futures market now pricing the possibility of the Fed cutting interest rates in March at about 48%. The potential for less interest rate cuts this year could result in a rise in U.S. bond yields, which in turn could help the U.S. dollar maintain stability and even rise. This has led to a weakening in the recent upward momentum of international spot gold.
Looking ahead, the release of key economic data in the United States, such as the manufacturing and services purchasing managers index (PMI) in January and the fourth-quarter GDP growth rate revision, will be closely watched. The market confidence in the Federal Reserve’s interest rate decision in March may weaken further in the coming weeks until the timing of interest rate cuts becomes clearer.
On a technical level, gold’s daily chart indicates a slight bearish trend, with the potential for a test of the $2,000.00 price level. However, strong buying support at low levels and the long-term upward trend on the monthly chart provide optimism for the future of gold.
While the outlook for gold remains somewhat uncertain, the prospects for the precious metal appear to be optimistic in the long term. This perspective was echoed by Wang Gang, an analyst at the Bank of China’s Guangdong Branch, who emphasized that his views are personal and do not represent the views of his institution.