Gold prices slid to five-week lows this week as optimism over potential US rate cuts in the first half of 2024 cooled following hawkish remarks from Federal Reserve officials. The precious metal fell over 2% on the week, putting it on track for its worst weekly performance since mid-December.
Lead Up to the Declines
Gold prices had rallied to start off 2024, nearing the key $2,100 level in early January amid heightened geopolitical tensions and expectations the Fed would cut rates later this year to offset an anticipated economic slowdown. Hopes were high that cooling inflation would give the central bank room to pivot to a more dovish policy stance.
Gold’s 2024 Performance
| Date | Price | Gain/Loss | Catalyst |
|---|---|---|---|
| 12/30/2023 | $1,820 | — | — |
| 1/9/2024 | $2,039 | +12% | Geopolitical tensions, rate cut hopes |
| 1/17/2024 | $2,010 | -1.4% | Upbeat US data, hawkish Fed remarks |
| 1/19/2024 | $1,980 | -1.5% | Strong US dollar, yields |
However, over the past week a string of robust US economic data along with hawkish rhetoric from Fed officials has challenged the notion that the central bank will be cutting rates anytime soon.
Upbeat December retail sales and industrial production reports indicated the US economy remains on solid ground despite rapidly rising interest rates in 2022. Comments from Fed officials like Loretta Mester and James Bullard also downplayed the chances of rate cuts in 2023.
Dollar Strength Adds Pressure
At the same time, renewed US dollar strength has weighed on gold prices. The dollar climbed to its highest level since mid-December against a basket of major currencies, buoyed by safe haven flows amid the uncertain global economic outlook.
A stronger greenback makes gold more expensive for foreign buyers, dampening demand. The negative correlation between the two assets persists as gold gives up the $2,000 level while the US Dollar Index trades back above 103.00.
US Dollar Index
*Image Source: MarketWatch*
What’s Next for Gold?
With bullion giving up nearly all its 2024 gains, analysts are debating whether further downside is in store or if gold can stabilize around current levels.
Most market observers see limited room for significant declines with geopolitical tensions persisting and major central banks still erring on the side of tight monetary policy. But a decisive break back below $2,000 could trigger additional technical selling.
“Near-term risks remain skewed to the downside, but any material weakness below the psychological $2,000 mark should be short-lived,” noted DailyFX strategist Peter Hanks.
Others see the latest slide as a bull market pullback within a longer-term uptrend.
“We view recent weakness as corrective with buyers likely to emerge on a test of the 2021 breakout area around $1,950,” said Standard Chartered analyst Suki Cooper.
Fed Policy Looms Large
Much depends on the Federal Reserve and whether lingering rate cut hopes get dashed by continued resilience in the US economy.
If upcoming PMI and jobs data point to strong growth, gold could see additional speculators abandon the commodity. But weakening activity may spark another leg higher on safe haven buying.
For now analysts suggest caution, with gold stuck in limbo between changing policy and economic crosscurrents.
UBS strategist Joni Teves summed up the uncertainty, saying gold remains caught between lingering recessionary fears and “less accommodative global central banks.”
How the metal trades in the coming weeks may come down to whether global growth or the Fed’s battle against inflation takes priority for investors. But with risks skewed in both directions, continued volatility seems likely.
So in summary, gold’s slide over the past week reflects easing optimism over the Fed cutting rates along with broad US dollar strength. While prices may stabilize around current levels, risks are tilted to the downside until bulls can regain control of the long-term technical picture.
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