Gold Slumps Amid Mixed Fundamentals, Dollar Pressure
Gold (XAU/USD) opened the week on a sluggish note on Monday (February 16th), continuing its consolidation phase as market participants remained reluctant to chase higher prices amid mixed macro signals. Gold is currently trading around $4,987, after briefly touching $5,054 intraday—down around 0.9% on the day.
Pressure came from a slightly stronger US dollar, while a series of US economic data last week also reduced expectations for an imminent Fed interest rate cut. Despite this, the market is still holding onto the scenario of policy easing in the second half of the year, which acts as a cushion for gold (a non-yielding asset). The combination of cooling inflation data and relatively solid labor market conditions has the market narrative pointing to gradual easing, rather than aggressive cuts.
Interest rate contracts have also begun pricing in more than 50 bps of easing this year, with the first cut likely in June, according to CME FedWatch. On the other hand, geopolitical factors remain a driving force behind safe-haven demand: the US-Iran issue has resurfaced, with reports that Iran is willing to consider a compromise to reach a nuclear deal, provided Washington opens the door to discussions on sanctions relief. Iranian Foreign Minister Abbas Araghchi has also arrived in Geneva ahead of the second round of negotiations, which begins Tuesday.
Against this backdrop, gold has the potential to remain range-bound in the near term. The continued high volatility in the precious metals market is making traders cautious, coupled with thin liquidity due to the Presidents' Day holiday in the US—making price movements prone to "choppy" movements.
This week's focus will shift to the FOMC meeting minutes (Wednesday), followed by Personal Income & Spending (Friday), which includes core PCE—the Fed's favorite inflation indicator. The market will also be closely monitoring the preliminary estimate of fourth-quarter GDP to gauge the timing of the next interest rate cut.
Source: Newsmaker.id
