Gold prices teeter as rate cut hopes ebb

2024-01-25
Summary:

Gold dipped as US business activity rose in January and inflation eased, prompting investors to reconsider expectations for a Fed rate cut.

Gold eased on Wednesday as US business activity picked up in January and inflation appeared to abate. Investors are rethinking their bets on how soon the Fed will cut rates.

A cut will not occur until Q2 with June seen more likely than May, according to a Reuters survey. As soft landing appears increasingly likely, there is little justification for early loosening.


They also expected PCE will average around the 2% target in the second half of this year, but core PCE will likely stay above 2% at least until 2026. The median GDP growth forecast for this year is 1.4%.


The Goldman Sachs Financial Conditions Index stands at 99.39, not far from the 16-month low of 99.21. That suggests the central bank could feel more comfortable keeping rates elevated for longer.


Around 75% of the effects of tighter monetary policy have already fed through to the economy, according to the IMF. But JPMorgan Chase CEO Jamie Dimon said a combination of financial and geopolitical risks is still worrisome over the next two years.


Russia is ramping up its front-line offensives against Ukraine, likely taking advantage of the "freezing ground conditions" to move armoured vehicles around the country, the UK Ministry of Defence said on Sunday.

XAUUSD

Bullion is poised to extend its pullback below the 50 SMA and a return to the support area around $2,000 is on the cards. A rally above $2,040 will likely negate the bearish trend and usher in a move towards $2,060.


Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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