- In January, core durable goods in the US dropped by the most significant amount in nearly four years.
- There was a decline in consumer confidence due to concerns about the economy’s outlook.
- Net imports of gold to China hit the highest since 2018.
Gold prices increased slightly on Tuesday as the dollar weakened, making gold more attractive to foreign buyers. At the same time, investors were awaiting more inflation data from the US and speeches from Fed policymakers. These will give guidance on the outlook for rate cuts in the US.
The dollar weakened after poor data from the US on Tuesday. A report revealed a drop in inflation expectations over the next year. Moreover, there was a decline in consumer confidence due to concerns about the economy’s outlook.
US durable goods orders (Source: US Commerce Department)
Meanwhile, core durable goods in the US dropped by the most significant amount in nearly four years at the start of the year. This indicates a slowdown in the economy as investors avoid large investments.
Other recent weak areas include consumer spending, manufacturing production, and housing. However, the chances of a recession this year remain low.
On Thursday, the US will release the Fed’s favorite inflation measure, the core Personal Consumption Expenditure Price Index. A higher-than-expected reading could hurt gold prices, likely leading to a further delay in Fed rate cuts. This has been the trend since the year began. Inflation has kept surprising investors, leading to a constant adjustment of rate cut expectations. The possible timing for the first rate cut in the US has gradually moved from March to June. This trend could continue. On the other hand, if the figure shows easing inflation, gold could rise.
Still, whichever the case, gold will likely hold above $2000 due to demand from central bank buying. Additionally, experts believe prices will surge in the fourth quarter when the Fed is expected to start cutting interest rates. Lower yields in the US increase demand for non-yielding gold by lowering the opportunity cost of holding the yellow metal.
Elsewhere, there was support for gold prices in China as demand increased. After a property sector crisis and a decline in the equities market, Chinese investors bought more gold in January to try and preserve their dwindling fortunes. As a result, net imports of gold to China have hit their highest since 2018.
