Gold Price Struggles Below $2,000 Amid Delayed Fed Rate Cut Bets and Geopolitical Tensions

Gold Price Struggles Below $2,000 Amid Delayed Fed Rate Cut Bets and Geopolitical Tensions

The price of gold (XAU/USD) continues to hover near a two-month low and struggles to surpass the psychological level of $2,000. The recent surge in the US Dollar (USD) due to delayed Federal Reserve rate cut speculations has put pressure on the non-yielding yellow metal. However, geopolitical tensions in the Middle East have helped limit the downside for gold, as it retains its status as a safe-haven asset. With the growing acceptance that the Fed will maintain higher interest rates for a longer period and a lack of substantial buying, the path of least resistance for gold seems to be to the downside.

The release of a stronger US inflation report has fueled speculations that the Federal Reserve will wait until its June policy meeting before cutting interest rates. This has acted as a tailwind for the US Dollar, which in turn has capped the upside potential for gold. Additionally, a further pullback in US Treasury bond yields is holding back USD bulls from aggressively betting on the currency.

While delayed rate cut bets and a stronger USD pose challenges for gold, the ongoing geopolitical tensions in the Middle East provide some support for the safe-haven asset. The risk of a further escalation of tensions between Israel and Lebanon, as well as negotiations for a ceasefire between Israel and Hamas in Gaza, contribute to limiting the downside for gold. Investors often turn to gold during times of uncertainty and conflict, providing a floor for the XAU/USD.

The release of US Retail Sales figures for January later in the North American session will provide further insights into the health of the US economy. Consensus estimates point to a 0.1% fall compared to the previous month. Other economic data to watch includes the Empire State Manufacturing Index, Philly Fed Manufacturing Index, Weekly Initial Jobless Claims, and Industrial Production data. These figures could impact the direction of gold and the USD as investors assess the strength of the US economy.

From a technical standpoint, bearish traders are keeping a close eye on the 100-day Simple Moving Average (SMA) as a key level to watch for further losses. A break below this support could accelerate the fall towards the important 200-day SMA, currently near the $1,965 level. If the 200-day SMA is convincingly breached, it could pave the way for a further depreciation towards the November 2023 low around the $1,932-1,931 region. On the other hand, any attempted recovery above the $2,000 mark will face strong resistance near the $2,011-2,012 area. A decisive break above this level could trigger a short-covering rally and push the gold price towards the 50-day SMA at around $2,030. Further gains beyond the 50-day SMA could potentially lead towards the $2,044-2,045 intermediate hurdle and the $2,065 supply zone.

Interest rates play a crucial role in shaping the price of gold. Higher interest rates generally strengthen a country’s currency, making it more attractive for global investors. This strength in the US Dollar, which gold is priced in, can lower the price of gold. Conversely, if interest rates are low, it reduces the opportunity cost of holding gold instead of investing in interest-bearing assets. The Fed funds rate, which is the overnight rate at which US banks lend to each other, is a key indicator monitored by market participants to gauge future Federal Reserve monetary policy decisions.

The price of gold remains confined in a range just above a two-month low, struggling to surpass the $2,000 mark. Delayed rate cut speculations and the resulting strength in the USD have put pressure on the non-yielding yellow metal. However, geopolitical tensions in the Middle East help limit the downside for gold, as it retains its safe-haven status. The upcoming release of US economic data, including retail sales figures, will provide further insights into the health of the US economy and potentially impact gold price movements. From a technical perspective, bearish traders are closely monitoring key support levels, while any attempted recovery faces resistance levels. Overall, factors such as interest rates and geopolitical tensions will continue to influence the price of gold in the near term.

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