On Tuesday, gold traded in a tight range and trimmed losses over the past two days to trade near a one-week low of $2,015 that was set to be hit earlier in the Asian session. However, against a backdrop of mixed fundamentals, bearish traders need to tread carefully to avoid a continuation of gold's pullback from last week's one-month high in the $2,065 area.
The dollar is near its highest level in nearly three months and is well supported by the prospect that the Federal Reserve will keep interest rates higher for longer, with the greenback also getting a boost from Friday's positive US jobs data. In addition, the Institute for Supply Management (ISM) non-manufacturing purchasing managers index (PMI) released on Monday rose to 53.4 in January from 50.5 previously. This, coupled with hawkish comments from influential Fed members, has further forced investors to scale back their expectations for more aggressive Fed easing in 2024.
In an interview with the CBS News program "60 Minutes" that aired Sunday, Fed Chairman Jerome Powell said the central bank can be patient in deciding when to cut interest rates. On Monday, Minneapolis Fed President Neel Kashkari said officials had time to assess incoming economic data before easing policy, while Chicago Fed President Austan Goolsbee reiterated his desire to see more favorable inflation data. This remains supportive of higher Treasury yields, which continue to support the dollar and should act as a headwind for gold, a zero-yielding asset.
At the same time, the Federal Reserve's unreadiness to declare victory over inflation, coupled with the risk of further escalation of geopolitical tensions in the Middle East, has weakened investors' appetite for riskier assets. The risk-off situation led to the overnight decline in the US stock market and became the only factor supporting the safe-haven asset gold price. In the absence of economic data from the US that could trigger market volatility, it is prudent to wait for strong follow-through selling before confirming a break in the short term.
