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Gold Price Erases 'Impressive' Gain as Powell Repeats March Rate Cut 'Unlikely'

GOLD PRICES fell on Monday, hitting 6-session lows as the US Dollar rose to a near 3-month high on the currency market and longer-term US interest rates jumped further as Federal Reserve chair Jerome Powell repeated that a March policy cut is "unlikely", writes Atsuko Whitehouse at BullionVault.
Gold prices fell almost $25 to $2015 per Troy ounce Monday lunchtime in London, erasing last week's gain.
"Gold last week [was] incredibly impressive," says Nicky Shiels, head of metals strategy at Swiss bullion refining and finance group MKS Pamp, "given the flip in macro from the Fed narrative ( March cuts are out, even May is now 50/50) and blockbuster US jobs report from every angle.
"The disconnect between market expectations of liquidity / Fed cuts and/or a Fed backstop vs reality, has not been larger, increasingly the risk of a reality check and strong repricing lower in rate sensitive assets" such as gold.
Chart of US Fed policy rate (blue, left axis) vs. Dollar gold price. Source: BullionVault
Repeating what he told journalists after last week's "no change" decision on Fed interest rates, "I think it's not likely that this committee will reach that level of confidence [on inflation moving down to the 2% target] in time for the March meeting, which is in seven weeks," said Powell on CBS's 60 Minutes show broadcast Sunday.
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Asked why the Fed can't just cut rates now, given that the central bank and financial markets all expect rate cuts by year-end, Powell said the US Federal Reserve should be "prudent" to avoid inflation rebounding.
"Monetary policy needs to remain prudent, that is restrictive, for some time to come to ensure inflationary pressures are contained," agrees Mathias Cormann, secretary general of global financial forum and think-tank the OECD, even while  revising its outlook to say inflation is falling at a faster rate than previously expected with US 2024 GDP growth now forecast at 2.1% from the 1.6% predicted in November. 
Although it has weakened from mid-2022's four-decade peak above 9% per year, annual inflation rate in the US consumer-price index rose in December to 3.3% from November's 5-month low of 3.1%.
January's data will be released on 13 February.
Betting on December's Fed meeting now forecasts 5 rate cuts by the end of 2024, slipping from a market consensus of 6 cuts a month ago, according to the CME's FedWatch tool.
The Dollar index – a measure of the US currency's value versus its major peers – today rose above the 104 psychological mark following Powell's 60 Minutes appearance, the highest since mid-November.
Ten-year US Treasury yields – a benchmark rate for government as well as many finance and commercial borrowing costs – climbed 6 basis points to 4.08%, extending the steep bounce from last Thursday's new 2024 low of 3.87%.
Oil prices steadied following last week's 7% falls after Washington vowed to continue airstrikes against Iran-backed groups in the Middle East in response to last month's deadly attack on a US base in Jordan.  
Prices for silver fell harder, down 1.8% to $22.28 per ounce and pushing up the Gold/Silver Ratio – which tracks the two formerly monetary metals' relative prices – further above 90, the highest value for gold versus silver in 2 weeks.
European equity bourses edged higher but Chinese stocks saw another volatile session, with the blue-chip CSI 300 index flipping a 2.1% plunge into a 0.7% gain as easier monetary policy from the People's Bank took effect just ahead of next weekend's Lunar New Year holidays.
Former US President Donald Trump, currently frontrunner for the Republican Party's 2024 nomination, said yesterday he might impose tariffs of 60% or higher on Chinese goods if he succeeds in returning to the White House in the November elections.
Gold prices on the Shanghai Gold Exchange today held $48 per Troy ounce above London quotes, suggesting strong demand in the metal's No.1 consumer market.
Gold priced in Euros meantime fell 0.3% to €1877 while the UK gold price in Pounds per ounce held unchanged around Friday's finish in London at £1605.

Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

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