- Data from the US will provide insights into the Fed’s plans for interest rate cuts.
- The Fed will likely keep rates steady at the January 31st policy meeting.
- India raised the import duty on gold and silver findings used in jewelry production.
On Tuesday, gold prices rose slightly as investors awaited a series of US economic data releases this week. The data is expected to provide insights into the Federal Reserve’s plans for interest rate cuts. Daniel Pavilonis, senior market strategist at RJO Futures, commented that the gold market is hovering just above the $2,000 mark, with uncertainty about the economic situation in the US.
This week, the US will release its flash PMI report on Wednesday, fourth-quarter advance GDP estimates on Thursday, and personal consumption expenditures data on Friday. Fed officials stated last week that the central bank needs to examine more inflation data before considering any rate cut decisions.
Markets currently predict the Fed will maintain rates at the end of the January 31st policy meeting. Moreover, they expect a delay in the timing of the first rate cut.
Fed rate cuts bets (Source: Bloomberg)
Most economists expect the US Federal Reserve to wait until the second quarter to start interest rate cuts, with June being more likely than May. Moreover, they forecast less easing than what the markets currently expect.
Meanwhile, the dollar reached its highest point in six weeks on Tuesday as investors returned to buying it. This is because markets now believe the Fed will not be quick to reduce interest rates.
Economists initially expected the first rate cut around mid-2024. However, there was a shift in the market, projecting a potential move in March after Chair Jerome Powell hinted at the possibility of cuts in last month’s Fed meeting.
According to Michael Hewson, chief market analyst at CMC Markets, recent rebounds in gold seem to be shallower. This indicates potential weakness as central banks continue resisting market expectations of rate cuts. Lower rates reduce the opportunity cost of holding bullion. Therefore, the sooner the rate cuts come, the better for gold.
Meanwhile, the European Central Bank will meet on Thursday and will likely maintain steady monetary policy.
On the physical front, India raised the import duty on gold and silver findings used in jewelry production. As the world’s second-largest consumer of gold relying heavily on imports, this move could impact the market significantly.