The price of gold (XAU/USD) continues its upward trend for the third consecutive day on Monday, currently trading near $2018.
This is despite reduced expectations of an interest rate cut by the Federal Reserve before the June policy meeting. The price maintains its strength, even as Consumer Price Index (CPI) and Producer Price Index (PPI) data for January strengthened the dollar.
I believe the reason behind the rise in gold prices is the Producer Price Index data for January, which defied expectations. Federal Reserve officials consider the recent surge in Consumer Price Inflation as temporary, affirming a longer-term trend indicating a significant decrease in inflation.
President of the Federal Reserve Bank of Atlanta, Raphael Bostic, anticipates that progress in core inflation measures might allow the Fed to start lowering interest rates starting this summer, putting negative pressure on the current rise in gold prices.
From my perspective, markets still anticipate a Fed interest rate cut this year, despite reduced chances of that happening in June. A delay in interest rate cuts could negatively impact gold. It’s worth noting that prolonged high interest rates reduce the attractiveness of non-yielding precious metals, as they increase competition for high-yield investments.
In the coming days, the People’s Bank of China (PBOC) will announce its interest rate decision, with no expected change in monetary policy. Investors will also monitor developments surrounding additional stimulus measures from Chinese authorities in the coming months.
Geopolitically, the Lebanese Hezbollah party states that it acts in solidarity with Gaza and will continue its attacks as long as Israel strikes the besieged Palestinian territory. Increased geopolitical tensions in the Middle East could lead to a rise in gold prices as it is considered a traditional safe-haven asset.
However, I believe the most significant event affecting the markets this week will be the release of the minutes from the Federal Open Market Committee meeting on Wednesday. This will be a crucial event to watch, providing opportune times for trading on the gold price.
Economic data releases in the United States this week are expected to push up yields on U.S. Treasury bonds and the U.S. dollar if they come in strong. This is particularly relevant as financial markets continue to reprice expectations of the timing of U.S. interest rate cuts. This is likely to influence movements later in the week, leaving most markets relatively unchanged at today’s and tomorrow’s close.
