Spot gold is coming off multi-week lows, but the precious metals still faces headwinds from Fed speakers, strong yields, and a well-supported U.S. dollar, according to Arslan Butt, Lead Commodities and Indices Analyst at FX Leaders.
“In the Asian trading session on Tuesday, GOLD prices (XAU/USD) showed signs of recovery, moving away from a near three-week low, hovering around the $2,017-2,016 region,” Butt wrote. “This positive shift is primarily attributed to a fall in US Consumer Inflation Expectations, stirring market speculation that the Federal Reserve might initiate interest rate cuts as early as March.”
He pointed to the latest report from the New York Fed’s recent report showing U.S. consumers’ short-term inflation projections dropping to their lowest levels since Jan. 2021, and said that these updated dovish expectations have led to “a more defensive stance for the US Dollar for two consecutive days,” which has supported gold prices.
“However, investors are moderating their expectations for an aggressive policy easing by the Fed, factoring in the resilience of the US labor market and hopes for a stable economy,” he wrote.
“Hawkish remarks from several Fed officials have further complicated the scenario, introducing uncertainties about early interest rate cuts,” he added, citing recent comments from Atlanta Fed President Raphael Bostic and Fed Governor Michelle Bowman, both of whom seemed to push back on the idea of imminent cuts.
Butt said that these factors support higher Treasury yields, which could put a floor beneath the greenback and cap gains for gold, and “a generally positive sentiment” in Asian equities limits gold’s safe-haven appeal.
“Traders are also likely to adopt a cautious approach, awaiting the release of the latest US consumer inflation figures on Thursday,” he added. “These figures are expected to significantly influence the USD price dynamics and subsequently offer fresh directional impetus to Gold prices.”
Turning to the technical picture, Butt said that gold is showing “a cautious bullish bias, approaching an initial resistance of 2046.60, influenced by a positive stochastic momentum,” but cautioned that “the 50-day EMA continues to exert negative pressure, indicating chances of a continued correctional bearish trend.”
Butt said he is maintaining his bearish outlook for gold prices “unless there is a sustained breach above the 2046.60 and 2065.70 levels.” He expects spot gold to trade between support at $2,015.00 and resistance at $2,050.00, “with the overall trend leaning bearish.”
Spot gold last traded at $2,034.32, and is virtually flat on the session at the time of writing.
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