Gold tumbles to 5-week low on cautious Fed stance

Onome Amuge

Gold fell to a five-week low after comments from several Federal Reserve officials indicated that they were not yet ready to begin lowering interest rates. The market had become overly optimistic following the Fed’s December meeting, during which the central bank shifted from a hawkish stance to a more dovish one and signaled that it could begin cutting rates as early as 2024. However, the latest comments from Fed officials suggest that they are not ready to initiate a rate cut any time soon.

The market’s previous expectations of a rate cut as early as March 2024 have now been tempered, as several Fed members and Fed chairman Jerome Powell have stressed that they are not yet ready to take this step. These statements have reduced the probability of a rate cut by March 2024 from 64.1% the previous day to 53 per cent.

The probability of a March rate cut was as high as 80 per cent at the beginning of the month, but has now declined to 53 per cent. According to market analysis, the price of gold is approaching its support level of $2000 on the COMEX exchange, and if this level is breached, the price could fall further to $1975.  Analysts also noted that the higher-than-expected US retail sales figures added to the selling pressure on gold, as strong domestic demand could reduce the urgency for the Fed to cut rates.

The US economy was expected to decelerate in 2024 by many economic analysts, but the latest retail sales figures suggest that consumer spending may continue to be resilient. This is further supported by the recent CPI data, which showed that inflation did not cool in December, rising by 0.3 per cent on a seasonally adjusted basis after rising by only 0.1 per cent in November.

One factor that could provide support for gold prices is the potential for increased tensions in the Middle East, which could lead to safe-haven buying. In the short term, however, the price of gold may remain range-bound or drift lower, as money managers have reduced their long positions but not added new short positions. According to the latest data, money managers reduced their speculative gross long positions in COMEX gold futures by 20,051 contracts to 134,333. In contrast, short positions increased by only 639 contracts to 45,874, indicating that most market participants are not currently betting on further declines in gold prices.