Gold prices remained relatively unchanged on Wednesday as the dollar retreated from three-month highs, offering some relief, although uncertainty persisted due to diminishing expectations of early U.S. interest rate cuts.
The recent strength of the U.S. economy and hawkish comments from Federal Reserve officials led to bets on higher interest rates, causing the dollar and U.S. Treasury yields to surge. While the dollar slightly declined from its recent highs, it maintained strong gains for the year.
The prospect of higher U.S. interest rates negatively impacts gold prices as it increases the opportunity cost of holding the precious metal. Despite this, gold prices stabilized around $2,035.12 an ounce for spot gold and $2,050.95 an ounce for gold futures expiring in April.
With a lack of clear market cues, investors awaited U.S. inflation data for January to provide direction for gold prices. While analysts predicted potential short-term losses for gold due to concerns about interest rates, the precious metal remained above the key support level of $2,000 an ounce.
However, the outlook for gold remained uncertain as markets adjusted their expectations for interest rate cuts in March and May. Additionally, the potential for a ceasefire between Israel and Hamas could diminish safe-haven demand for gold.
While gold is expected to benefit from eventual interest rate reductions, signs suggest that this scenario may occur later in 2024 rather than earlier.
