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Gold drops as dollar firms

Gold prices

Spot gold dropped by 0.2% to $2,171.05 per ounce and U.S. gold futures also saw a 0.2% decrease, settling at $2,175.40

Gold prices experienced a slight decline on Thursday due to the strengthening of the U.S. dollar. However, the value of bullion remained close to its all-time high as traders eagerly awaited additional economic data from the United States. This data could potentially influence expectations for a rate cut by the Federal Reserve in the middle of the year.

As of 0426 GMT, spot gold dropped by 0.2% to $2,171.05 per ounce. Similarly, U.S. gold futures also saw a 0.2% decrease, settling at $2,175.40.

The U.S. dollar index recorded a 0.1% increase. A stronger dollar typically leads to higher gold prices for holders of other currencies.

Investors are eagerly anticipating the release of U.S. retail sales data, the producer prices index (PPI) report, and jobless claims later in the day. These indicators will provide insight into the overall health of the U.S. economy and whether it will impact the Federal Reserve’s decision to cut rates in June.

There was a mini pullback in gold prices after U.S. CPI data release, but it does not change the market’s view by much on U.S. monetary policy, and with today’s PPI data – if the core annual figure reading appears near expectations, I still reckon that gold price could remain supported, Kelvin Wong, a senior market analyst for Asia Pacific at OANDA, said.

According to LSEG’s interest rate probability app, traders currently perceive a 67% likelihood of a rate cut in June. This figure has decreased from 72% following data that indicated some stability in inflation.

The Federal Reserve will unveil its latest ‘dot plot’ projections during its upcoming policy meeting next week. In the December meeting, projections suggested three-quarter-point rate cuts for 2024.

Other catalysts that could move gold prices could be further bad news on China’s housing market and its local government funding mechanism, and trends in consumer demand, Nicholas Frappell, global head of institutional markets at ABC Refinery, said. Frappell expects official sector demand to remain supportive for gold prices this year.

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