Gold prices fall, market awaits GDP and inflation data

Strong economic indicators and diminishing recession fears impact gold's allure
Gold prices fall, market awaits GDP and inflation data
The dollar index rose by 0.1 percent to a six-week high, diminishing the attractiveness of gold

In a surprising turn of events, gold prices experienced a dip today, Thursday, amidst the release of vital data indicating a resilient start for the U.S. economy in 2024. By 7:28 AM GMT, spot gold prices fell from $2,026.86 per ounce yesterday to $2,015.83 per ounce today. Meanwhile, U.S. gold futures fell from $2,028.15 yesterday to $2,016.25 today.

Hence, gold prices hit a one-week low today. The buoyant business activity and a notable decline in inflationary pressures led to a shift in market sentiment.

Dollar strength

The U.S. economy’s resilience has prompted markets to reconsider the likelihood of policy easing and recession risks. The dollar index rose by 0.1 percent to a six-week high, diminishing the attractiveness of gold to other currency holders and decreasing its prices. Additionally, yields on benchmark U.S. 10-year Treasury notes remained close to a more than one-month high of 4.1980 percent.

While the currency initially faced a decline, it managed to recover some losses after data revealed a pickup in business activity and a decrease in a measure of inflation. A gauge of prices charged by companies fell to its lowest level in more than 3-1/2 years, suggesting a potential shift in economic dynamics.

Fed rate cuts

Despite a 43 percent chance of a Fed rate cut in March, expectations have shifted to May, with an 88 percent probability of policy easing, according to LSEG’s interest rate probability app IRPR. Lower interest rates reduce the opportunity cost of holding non-yielding bullion, making gold prices susceptible to further downside risks.

Therefore, investors are now closely monitoring upcoming events that could influence gold prices. This includes the first reading of fourth-quarter U.S. GDP at 13:30 GMT, the European Central Bank policy decision at 15:15 GMT, and personal consumption expenditure data on Friday. The outcome of these events may provide further clarity on the direction of gold prices in the near term.

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Global currencies

The yen strengthened against the dollar, tracking a rise in Japanese bond yields. Moreover, after a six-week low, the euro saw a rebound, influenced by positive PMI surveys indicating a potential easing of the eurozone economic downturn. Additionally, the onshore yuan strengthened following China’s central bank announcement of a deep cut to bank reserves.

Precious metals

While gold faced a setback, other precious metals showed mixed movements. Spot silver rose by 0.4 percent to $22.76 per ounce, platinum climbed 0.3 percent to $901.53, and palladium gained 0.1 percent to $964.07.

Investors are navigating through a dynamic market, considering various factors influencing gold prices. The upcoming Federal Reserve policy meeting, U.S. GDP reading, and other key events will play a crucial role in shaping market sentiment in the days to come.

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