Gold prices (XAU/USD) exhibited a narrow trading range during the Asian session on Tuesday, consolidating recent losses that pushed it to a one-week low around the $2,015 area. The cautious stance among bearish traders is warranted due to a blend of mixed fundamental factors, signaling potential hesitation before committing to an extension of last week’s retracement slide from the $2,065 region, marking a one-month peak.
The US Dollar (USD) maintains strength, hovering near a nearly three-month high, supported by expectations that the Federal Reserve (Fed) will uphold higher interest rates for an extended period, particularly in light of Friday’s encouraging US jobs data. Further reinforcing this sentiment, the Institute for Supply Management (ISM) reported on Monday that its Non-Manufacturing PMI rose to 53.4 in January from the previous 50.5. Hawkish remarks from key Federal Open Market Committee (FOMC) members contribute to the overall market perception of a less dovish Fed stance in 2024.
In a recent interview on CBS News’ “60 Minutes,” Fed Chair Jerome Powell emphasized the central bank’s patience in deciding when to adjust interest rates. Minneapolis Fed President Neel Kashkari echoed this sentiment, suggesting officials have time to assess incoming data before considering easing measures. Chicago Fed President Austan Goolsbee reiterated the desire for more favorable inflation data. These comments support sustained US Treasury bond yields, reinforcing the USD and acting as a headwind for Gold, a non-yielding asset.
Simultaneously, the belief that the Fed remains cautious about declaring victory over inflation, coupled with concerns about potential geopolitical tensions in the Middle East and China’s economic challenges, curbs investor appetite for riskier assets. This risk-averse sentiment triggered an overnight corrective decline in US equity markets, providing the primary support for the safe-haven Gold price. Given the absence of significant economic releases from the US, a prudent approach involves waiting for conclusive follow-through selling to confirm a short-term bearish breakdown.
