Gold Below Key Levels as Dollar Gains on Fed Rate Cut Doubts

Gold prices gained in Asian trade on Thursday but traded below the critical $2,050 level as the US dollar recuperated losses on increased uncertainty over the timing of the Federal Reserve’s interest rate cuts this year.

Spot gold added 0.29% to $2,047.39 per ounce, while gold futures climbed 0.56% to $2,054.20 per ounce. The two instruments had a lower start in the New Year, logging around a 1.0% loss in their first two sessions.

The yellow metal had a solid surge in the final days of 2023 amid broader expectations for the Fed to begin trimming benchmark interest rates as soon as March this year.

However, profit-taking at the start of 2024 struck gold, while traders also slightly eased their hopes of the central bank reducing rates early.

Adding pressure to the yellow metal was investors’ cautious stance ahead of Friday’s release of the US nonfarm payrolls data.

Fed Rate Cut Timeline Unclear, Nonfarm Payrolls Data Due

Gold fell further on Wednesday, while the greenback continued to bounce back after minutes of the Fed’s meeting in December provided no clear signs of when the central bank might start cutting interest rates.

Quarterly forecasts suggested three rate reductions this year, with Fed officials expecting interest rates to decline as much as 75 basis points (bps). However, the minutes of last month’s meeting were somewhat vague about the timeline of the move.

The policymakers also remained open about the possibility of raising rates once again.

The central bank recognized its progress in curbing inflation with interest rate hikes in 2023. Still, certain officials stated the need for tight monetary policy in the near term due to growing uncertainty over the outlook of the world’s largest economy.

The US economy is easing, but inflation continues to stay above the Fed’s annual target of 2%. The labor market is also fairly robust, with the upcoming nonfarm payroll data likely to offer additional cues.

Traders are pricing in a 65% likelihood of a 25 bps rate cut in March as per the CME FedWatch tool, sliding from the over 70% chance priced in at the beginning of the week.

While the yellow metal took a stumble at the start of the year, it was able to maintain gains of more than 10% in 2023. Gold is seen to find support from lower interest rates this year, considering higher rates drive the opportunity cost of purchasing bullion.