Gold News

Gold Price Falls 3rd Week Running as Fed Rate-Cut Bets Sink, Middle East Violence Spreads

The GOLD PRICE cut an earlier rally from 5-week lows in London trade Friday, making its lowest weekly close since mid-December and falling for the 3rd week running in 2024 so far as political violence in the Middle East spread from the Red Sea to Pakistan, boosting fears of inflation and crushing bets that the Federal Reserve will cut interest rates in March.
Pakistan is now the 9th nation to see cross-border conflict in the Middle East region since southern Israel was hit by Hamas' atrocities on October 7th.
The US military said overnight it had again attacked Yemen, destroying anti-ship missiles aimed by Iran-backed Houthi militants at freighters in the Red Sea, a key route for Asia-Europe cargo.
"The Red Sea conflict is clearly important in all sorts of ways," says bullion-market analyst Rhona O'Connell at brokerage StoneX, "but the changes in shipping routes (and higher freight rates) are likely to imperil already misplaced expectations for [US Fed] rate cuts in March."
Despite bullion paying no yield, gold rose to new all-time high prices in 2023 even as Western central banks raised interest rates to the highest in almost 2 decades in a bid to counter the worst inflation since the 1970s.
But expectations that the US Federal Reserve will start cutting its overnight Dollar borrowing costs in March have sunk so far in 2024, dropping from almost 9-in-10 positions in CME interest-rate futures on the last trading day of December to pricing it as barely a 50-50 shot today.
Chart of futures-market odds for a March rate cut from the Fed vs. the Dollar gold price. Source: BullionVault
Fixing below $2030 per Troy ounce at London's bullion-market benchmarking auction Friday, the price of gold has now dropped 3 weeks running from end-2023's new all-time weekend level of $2062, but it's rallied almost $30 above Wednesday's drop to the lowest since mid-December.
Longer-term interest rates in the bond market also today reset to levels last seen before the Fed said last month that its policymakers expected to cut Dollar interest rates 3 times across 2024, with the yield on 10-year Treasury debt rising to 4.18% per annum.
That's over 0.2 percentage points higher from Friday last week, the 5th steepest rise since this time last year.
The US Dollar meantime slipped 0.1% from yesterday's 5-week high on its trade-weighted DXY index, pegging the UK gold price in Pounds per ounce just below £1600 with Euro gold prices also lower for the week at €1860.
Crude oil showed a small weekly gain but slipped beneath $77 per barrel of Brent, while silver prices fell back towards Thursday's new 2-month lows beneath $22.50 per Troy ounce.
While the US labor market and economic growth continue to hold "solid", said Atlanta Federal Reserve President Raphael Bostic – now a voting member of the US central bank's policy committee – in a speech Thursday, "It appears that restrictive monetary policy is indeed working to help lower the rate of inflation.
"[This] unexpected progress on inflation and economic activity [means] my projected time to begin normalizing the federal funds rate [is now] the third quarter of this year [rather than] the fourth quarter."
Pakistan today "underscored the need for closer cooperation on security issues" in a high-level call with Iran after both sides attacked breakaway militias in each other's territory earlier this week.
The fighting came as Jordan made fresh airstrikes against pro-Iranian militia in southern Syria, aiming to hit drug smugglers accused of shipping amphetamine Captagon across the "porous" border into the Kingdom. 
"There is an empire of evil emanating from Iran," said Isaac Herzog, President of Israel – which again hit Iran-backed military in neighboring Lebanon this week while continuing its bombardment and occupation of Gaza following Hamas' attacks – at the World Economic Forum in Davos, Switzerland yesterday.
Senior US politicians are meantime set to visit Taiwan next week, angering Beijing's Communist dictatorship after pro-independence William Lai of the ruling Democratic Progressive Party (DPP) won the island nation's presidential election but the opposition Kuomintang (KMT) took control of Taipei's parliament by 1 seat. 
With China now seen as "the biggest exporter into Russia's war economy", officials from the US Treasury this week urged Chinese and foreign banks in Hong Kong to apply the Biden White House's new sanctions against Moscow over its continued war in Ukraine.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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