In the early hours of Thursday’s Asian trading session, the Gold price (XAU/USD) remains confined within a narrow trading band, hovering above the $2030 per troy ounce mark. The cautious sentiment is attributed to comments from four Federal Reserve (Fed) officials who emphasized the absence of an urgent case for interest rate cuts, stating a preference for more evidence of inflation data before considering such actions. As a result, gold benefits from safe-haven flows amidst ongoing geopolitical tensions in the Red Sea, currently trading near $2,035 with a marginal 0.07% gain for the day.
Simultaneously, the US Dollar Index (DXY) slips to the 104.00 mark, while US Treasury yields experience a slight decline, with the 10-year yield standing at 4.11%.
Notable figures, including Fed Governor Adriana Kugler, Boston Fed President Susan Collins, Minneapolis Fed President Neel Kashkari, and Richmond’s Thomas Barkin, have refrained from committing to a timeline for interest rate cuts, aligning with Fed Chair Jerome Powell’s recent message. Powell emphasized that rate cuts will only be considered once policymakers are confident that inflation is on track to reach the 2% target.
Despite market expectations of a potential rate reduction in May, the prevailing narrative of higher interest rates in the US diminishes the incentive for investors to flock to gold, given its lack of interest-bearing returns.
However, geopolitical tensions in the Middle East, marked by escalating conflicts and US military airstrikes in Iraq, Syria, and Yemen, contribute to the appeal of traditional safe-haven assets like gold, potentially limiting its downside. The retaliatory strikes by the Biden administration and ongoing attacks on commercial ships in the Red Sea by Yemen’s Houthi militia add to the uncertainty.
Looking ahead, the release of the January Chinese Consumer Price Index (CPI) and Producer Price Index (PPI) on Thursday will be closely monitored. Additionally, the market awaits the weekly Initial Jobless Claims, Wholesale Inventories, and a speech by Fed’s Barkin (Richmond) later in the day.
