The gold market has commenced the first trading day of 2024 on a positive note, building on its impressive 14% annual gain in 2023. Despite facing a modest uptick in the US Dollar (USD) and rising US Treasury bond yields, gold is finding fresh demand early on Tuesday. The precious metal’s resilience can be attributed to several factors, including lingering geopolitical tensions in the Middle East and concerns about broader regional discord.
Geopolitical factors are playing a crucial role in supporting gold prices as reports indicate that US helicopters repelled an attack by Iran-backed Houthi militants on a Maersk container vessel in the Red Sea. The incident resulted in the sinking of three Houthi ships and the death of 10 militants. With ongoing conflicts in the Middle East, including the Israel-Gaza situation, investors remain cautious, seeking refuge in traditional safe-haven assets like gold and the US Dollar.
The US Dollar is experiencing support from an extended recovery in US Treasury bond yields. Investors are closely watching key US economic data releases scheduled for the week, which could impact expectations of interest rate cuts by the US Federal Reserve (Fed) in 2024. Current market sentiment indicates a 72% chance of a March Fed rate cut, with expectations rising to 84% for the May meeting.
China’s manufacturing data, indicating a fragile recovery and a third consecutive month of contraction, is adding to global economic uncertainties. The latest figures from China’s National Bureau of Statistics (NBS) revealed that manufacturing activity weakened more than expected in December. Although the Caixin Manufacturing PMI for December showed a modest improvement to 50.8, concerns persist about the broader demand revival in the region.
Looking ahead, the economic calendar for the beginning of 2024 is relatively quiet, with attention focused on the final manufacturing PMI data from Europe and the US. However, all eyes are on the upcoming key US jobs data releases scheduled throughout the week. Wednesday will feature JOLTs Job Openings data, followed by the ADP employment change on Thursday, and the highly anticipated Nonfarm Payrolls report on Friday. Additionally, market participants will scrutinize the Minutes of the Fed’s December meeting on Wednesday for insights into the central bank’s interest rate outlook for the year. As uncertainties persist on multiple fronts, gold remains an attractive asset for investors seeking a safe haven amidst geopolitical tensions and economic uncertainties.
