Gold prices found some stability on Tuesday following a significant decline over the past week, as the rally in the dollar took a breather. Investors are now closely monitoring the yellow metal’s movement, anticipating a potential test of a crucial support level.
The recent trajectory of gold has been overshadowed by persistent worries surrounding the prospect of prolonged higher U.S. interest rates, particularly amid growing speculation that the Federal Reserve might maintain rates unchanged until June.
The catalysts for this sentiment were robust U.S. economic data and hawkish remarks from Federal Reserve Chair Jerome Powell. These factors prompted sharp downward movements in gold prices in the past few sessions.
The dollar surged to nearly a three-month high, accompanied by a sharp increase in U.S. Treasury yields, adding pressure on gold prices in the face of expectations for elevated interest rates.
As of 00:23 ET (05:23 GMT), spot gold steadied at $2,026.33 an ounce, while gold futures expiring in April remained unchanged at $2,042.40 an ounce.
Attention now turns to the $2,000 support level as market concerns over interest rates intensify. Analysts suggest that spot gold prices may test this critical level in the coming days, particularly if there are no significant shifts in the outlook for U.S. interest rates.
According to the CME Fedwatch tool, traders are currently pricing in an 83% probability of the Fed maintaining rates at their current levels in March, with expectations steadily rising for a similar stance in May.
Gold had briefly flirted with the $2,000 level earlier in January but managed to stay above it. However, a breach below this support could signal further downside potential for bullion prices, particularly amid expectations of prolonged higher U.S. rates.
Next week’s U.S. inflation data is anticipated to serve as a crucial turning point for gold prices, while several Fed officials are scheduled to deliver speeches this week, which could provide further insights into monetary policy direction.
The allure of gold diminishes in an environment of higher U.S. rates, as it increases the opportunity cost of holding the precious metal.
Meanwhile, in the realm of industrial metals, copper prices saw a modest rebound on Tuesday after four consecutive sessions of losses. This uptick came as markets digested additional signs of economic weakness from China, the world’s largest copper importer.
Copper futures expiring in March rose by 0.5% to $3.7920 a pound, following losses exceeding $1 over the past four sessions. Weak purchasing managers index readings from China, particularly in the manufacturing sector, weighed on copper prices, highlighting concerns about subdued business activity.
Investor focus this week will be on Chinese inflation data for January, scheduled for release on Thursday, just ahead of the week-long Lunar New Year holiday. This data release is expected to provide further insights into the state of the Chinese economy and its potential implications for global markets.