Gold Holds Despite Dollar Weakness, What's Stopping It
Gold (XAU/USD) continued to weaken at the start of the European session on Monday (February 16th), despite rebounding from its daily low and now holding around the psychological level of $5,000. However, a combination of supporting factors means market participants should be cautious about rushing into aggressive bearish positions before further declines are confirmed.
The main pressure comes from the slight strengthening of the US dollar and risk-on sentiment, which tends to pressure safe-haven assets. However, geopolitical risks have resurfaced ahead of the second round of US-Iran nuclear talks this week. The US has reportedly sent a second aircraft carrier to the region and is preparing a scenario for a prolonged military campaign if negotiations fail.
Iran has responded with a warning: its Revolutionary Guards have claimed they are ready to attack US military bases if an attack occurs on its territory. Such an escalation could potentially be a boost for gold.
On the other hand, the dollar's room for strength remains limited as the market remains committed to expectations of a more dovish Federal Reserve stance—a condition that typically supports non-yielding gold. Investors began to shrug off last week's surge in US Nonfarm Payrolls (NFP) data, after the release of softer consumer inflation on Friday again raised the odds of interest rate cuts starting in June. Headline CPI rose 0.2% and core CPI rose 0.3% last month, strengthening the case for policy easing and potentially limiting further declines in gold.
Furthermore, thin trading volumes due to the Presidents Day holiday in the US could discourage the market from aggressively placing large directional bets. Nevertheless, comments from Fed officials could still trigger volatility in the dollar and gold. The market's primary focus remains on the FOMC meeting minutes on Wednesday for clues on the path to interest rate cuts. After that, market participants will also await global flash PMI figures on Friday to look for opportunities for cleaner movements in the second half of the week.
Source: Newsmaker.id
