In the early Asian session on Tuesday, gold prices (XAU/USD) maintained modest gains above the $2,050 mark, spurred by escalating geopolitical tensions in the Red Sea and a prevailing risk-off sentiment. At the time of reporting, the gold price stood at $2,055, registering a 0.06% increase for the day.
The US Dollar Index (DXY), reflecting the USD against a weighted basket of currencies from US trade partners, continued its consolidative trend near 102.60 since the year’s commencement. Concurrently, Treasury yields saw a marginal dip, with the 10-year yield standing at 3.95%.
Market dynamics reveal an 86% probability, as priced in by investors, of a rate cut by March. The anticipated 2024 easing cycle is estimated at approximately 166 basis points (bps), surpassing the Fed dot plot projection of 75 bps. However, Atlanta Federal Reserve (Fed) Raphael Bostic cautioned against hastening rate adjustments, suggesting a hold until at least summer to curb potential inflationary pressures. Bostic emphasized the importance of ensuring inflation returns to the 2% target before considering any policy shifts.
In a separate geopolitical development, Houthi rebels targeted a US-owned ship in the Gulf of Aden, following an earlier launch of an anti-ship cruise missile towards a US destroyer in the Red Sea. Such events tend to bolster the appeal of gold as a safe-haven asset during times of uncertainty and geopolitical unrest.
Looking ahead, market participants remain focused on developments in the Middle East’s geopolitical landscape. Additionally, the US NY Empire State Manufacturing Index for January and a speech by the Federal Reserve’s Christopher Waller later on Tuesday will be closely monitored for potential market impact.
