Gold prices are projected to be volatile throughout this week due to the release of the United States (US) central bank meeting The Federal Reserve (Fed). In the past week, the world gold price fell 0.71% on a point-to-point basis. Over the past month, prices only rose 0.21%. Gold price movement is very limited. In fact, the price of this precious metal has fallen 2 consecutive weeks.
Gold prices strengthened earlier this week, trying to continue the strengthening of the previous three days of trading. Although it still fell weekly last week. At the close of trading on Friday (16/2/2024) the price of gold on the spot market closed 0.45% higher at US $ 2013.1 per troy ounce. Gold prices managed to stay at the psychological US $ 2,000 per troy ounce.
Although gold prices have the potential to continue to rise going forward, expectations that the Fed’s interest rate will not fall will hinder the increase in gold prices. This week Fed Chairman Jerome Powell is expected to be hawkish again in his speech in the minutes of the Federal Open Market Committee (FOMC) meeting. This makes it difficult for gold to rise much above the US$2,000 level.
With the Fed unlikely to cut interest rates in March, gold may struggle to rise much above the US$2,000 per troy ounce level. Economic growth in the US has been strong, suggesting higher inflation, which is a drag on gold.
Economic data in the United States (US) is still solid, keeping gold prices on hold. Last weekend, the US Bureau of Labor Statistics announced that producer-level inflation in January was at 0.3% compared to the previous month (month-on-month / mtm). This is the highest in the last 5 months, after December deflation of 0.1%.
Market participants have shelved their expectations of US interest rate cuts from March to June 2024. The market currently estimates a 73% chance of a rate cut in June, according to the CME Fed Watch Tool.
Review of Gold Prices Last Week
In the past week, the world gold price fell 0.71% on a point-to-point basis. Over the past month, prices only rose 0.21% due to the influence of US economic data. Although gold is considered a hedge against inflation, higher interest rates dim the appeal of non-yielding gold bars.
Gold had rallied for three straight days last week, but is still on its second consecutive weekly weakening trend after hot inflation data cooled the prospects of an early interest rate cut by the Federal Reserve (Fed).
Last week was the toughest time for gold throughout 2024. On Tuesday trading (13/2/2024), the price of gold on the spot market closed at US $ 1992.89 per troy ounce. Gold prices collapsed 1.33%. This price is the lowest since December 12, 2023 or the last two months.
This very deep weakening also made the price of gold knocked out of the psychological level of US $ 2,000 for the first time in the last two months. However, gold was able to bounce back in the last two trading days and closed the week above the US$2,000 per troy ounce level. Gold prices collapsed after US inflation data came out on Tuesday night Indonesian time or Tuesday morning US time.
US inflation broke through 3.1% (year on year/yoy) in January 2024. Inflation only slipped slightly compared to December 2023 which was at 3.4%. Inflation was even far above market expectations which only predicted 2.9%. On a monthly basis, inflation even increased by 0.3% in January 2024, from 0.2% in December 2023. Inflation surged due to price increases in the housing and food sectors.
Core inflation excluding energy and food reached 3.9% (yoy) in January 2024 or the same as December 2023. This hot US inflation has made market participants increasingly pessimistic that the US central bank The Federal Reserve (The Fed) will cut interest rates soon. Data showed that US producer prices increased more than expected in January 2024. The US producer price index (PPI), a measure of prices received by domestic producers of goods and services, rose 0.3% on the month, the largest move since August.
This week the movement of gold is determined by the results of the FOMC meeting, US markets will be closed on Monday US time in observance of President’s Day. Investors will pay close attention to the minutes of the Fed’s FOMC meeting which will come out on Wednesday.
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