H.G Markets:

Gold maintained its position above $2,020 an ounce on Friday, poised to close the week with gains, supported by a weaker dollar and increased demand for safe-haven assets. Gold prices showed minimal movement in Asian trade, remaining within a recently-established trading range. These developments coincided with rising uncertainty regarding the Federal Reserve’s plans for interest rate cuts in light of mixed US economic data. Fed Governor Christopher Waller’s remarks on Thursday suggested a cautious approach, recommending a delay in rate cuts for a couple more months to assess whether January’s high inflation report was an anomaly. Waller emphasized the importance of staying on track toward the inflation target, cautioning against premature actions that could jeopardize progress and harm the economy.

 The precious metal faced limited upside amid growing conviction that the Federal Reserve would not implement early interest rate cuts in 2024. While gold saw some gains during the week, recovering from recent losses, concerns about higher and prolonged interest rates, as well as the strength of the dollar and Treasury yields, limited significant upward momentum.

The outlook for gold remained subdued as signals from the Federal Reserve indicated a reduced likelihood of early rate cuts. Fed Governor Christopher Waller emphasized that the central bank was not in a hurry to cut rates early, considering sticky inflation. Labor market strength, as indicated by unexpectedly falling weekly jobless claims, added to the case for the Fed maintaining higher rates.

Market expectations for a May rate cut were almost entirely priced out, with the likelihood of a hold in June increasing. The prospect of higher rates for a more extended period presented additional pressure on gold prices, impacting the opportunity cost of holding bullion. However, gold outperformed other precious metals during the week, as platinum and silver futures experienced declines.

Among industrial metals, copper futures for March delivery dipped slightly but were set to achieve weekly gains for the second consecutive week. Hopes for an economic recovery in China, the top copper importer, contributed to the positive sentiment. Beijing’s supportive measures and increased spending and travel during the Lunar New Year holiday suggested potential improvement in China’s economic outlook.

Fed policymakers are leaning towards maintaining interest rates within the range of 5.25% to 5.50% for an extended period to evaluate whether the persistent inflation data from January was a temporary anomaly or a more sustained concern. The Fed appears to be adopting a cautious approach, avoiding swift rate cuts that could potentially exacerbate upward risks to persistent consumer price inflation.

Additionally, heightened geopolitical tensions in the Middle East contributed to increased demand for gold, as Houthi militants claimed responsibility for attacks on commercial vessels during the week.