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Gold price expectations amid anticipation of crucial U.S. data

Today's market analysis on behalf of Rania Gule Market Analyst at XS.com

 

February 27, 2024 (Investorideas.com Newswire) Gold (XAU/USD) gained renewed strength after yesterday's modest decline, trading at $20,378 during Tuesday's session, remaining within proximity to the two-week high reached last Thursday. The US dollar continues to be in a weakened position following the recent drop in US Treasury bond yields, considered a key factor pushing commodity and metal prices higher. Ongoing concerns about geopolitical tensions in the Middle East also seem to support the safe-haven status of gold.

I believe that any strong upward movement in the gold price appears limited due to expectations of a hawkish Federal Reserve. This sentiment strengthened after the minutes of the Federal Open Market Committee meeting last week, along with statements from several Federal Reserve officials, indicated that the central bank would keep interest rates high for an extended period amid stable inflation and a flexible economy. This is expected to act as a driving force for an increase in US bond yields and the dollar, potentially restraining any significant upward movement in gold prices that do not yield returns.

From my perspective, market participants are now anticipating the release of overall US data such as durable goods orders, the Consumer Confidence Index by the Conference Board, and the Richmond Manufacturing Index, looking for short-term opportunities later in the day.

However, the focus will remain on the Personal Consumption Expenditures (PCE) Price Index in the United States on Thursday, which may provide new signals about the path and timing of interest rate cuts by the Federal Reserve, offering fresh momentum for the gold price. The yield on the 10-year US government bonds remains low, near 4.275%, undermining the strength of the dollar today and providing some support for the price of gold.

Recession in Japan and the United Kingdom, along with ongoing geopolitical tensions arising from conflicts in the Middle East, continue to support the rise in the price of gold as a haven. Especially after US President Joe Biden stated yesterday on Monday that he hopes to reach a ceasefire in the Gaza war and an agreement to release hostages by the beginning of Ramadan on March 10.

Currently, the markets are pricing in the possibility of an interest rate cut in March, with approximately a 60% chance of a 25-basis point rate cut at the Federal Open Market Committee meeting in June. Traders are now looking to the upcoming US economic data, especially durable goods orders, the Consumer Confidence Index by the Conference Board, and the Richmond Manufacturing Index.

Investors are also eagerly awaiting the release of the US fourth-quarter Gross Domestic Product (GDP) reading on Wednesday and the Personal Consumption Expenditures (PCE) Price Index on Thursday. The latter is considered the preferred inflation gauge by the Federal Reserve and is expected to influence expectations regarding future interest rate cuts, providing new momentum for the gold price in the coming days. I expect the Federal Reserve to avoid considering interest rate cuts or even specifying their timing until they have evidence that inflation will sustainably decrease to the 2% target through data readings.

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