The gold price has been moving sideways, indicating a period of consolidation in market activity. During the Asian session on Wednesday, gold was seen hovering above $2,060 per troy ounce. This upward movement in gold prices can be attributed to traders factoring in the potential for rate cuts by the Federal Reserve (Fed). According to the World Interest Rate Probability (WIRP), the market has priced in a 15% probability of a cut on January 31 and has fully priced in cuts by March 20. By the end of 2024, the market has fully priced in six cuts.
The geopolitical tensions in the Middle East are adding to the heightened risk-off sentiment, further boosting demand for gold as a safe-haven asset. The ongoing conflict in the region, particularly between the United States and Iran, has investors seeking refuge in gold. While concerns about Iran potentially closing the Gibraltar Strait exist, many doubt the feasibility of such an action. Nevertheless, the uncertainty surrounding the conflict is driving investors towards safe-haven assets like gold.
On Friday, softer US data contributed to the downward pressure on the Greenback. The US Dollar Index (DXY) is currently below 101.50, influenced by subdued US Treasury yields. Both the 2-year and 10-year yields on US bond coupons are trading lower, further weakening the dollar. Former Dallas Federal Reserve President Robert Kaplan believes that the Federal Reserve is exercising caution to avoid making the same mistake of prolonged excessive accommodation. This cautious approach, coupled with weaker economic data, is putting downward pressure on the US Dollar.
Signs of Normalization in the Red Sea, Shipping Firms Resume Operations
Despite the concerns over the Middle East conflict, major shipping firms like Maersk and CMA CGM have started to return to the Red Sea. The deployment of a multinational task force in the region has helped to ease tensions and restore confidence for these shipping firms. The decision of Hapag-Lloyd on resuming shipments is awaited on Wednesday, which will further indicate the state of normalization in the region.
Looking ahead, Thursday is set to bring the release of Initial Jobless Claims and Pending Home Sales data from the United States (US). These data releases will provide further insights into the economic landscape and could potentially impact the gold price. Investors will be closely watching these indicators to gauge the strength of the US economy and potential future actions by the Federal Reserve.
The gold price is currently consolidating as traders factor in the potential for rate cuts by the Federal Reserve and geopolitical tensions in the Middle East heighten risk-off sentiment. The weakened US Dollar, as a result of softer economic data, further contributes to the upward movement in gold prices. Meanwhile, signs of normalization in the Red Sea are allowing shipping firms to resume operations, albeit cautiously. Investors will closely monitor upcoming data releases for a better understanding of the economic landscape and its potential impact on the gold market.
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