In the Asian trading session on Monday, gold prices rebounded, recovering most of their losses from the start of the new year. Persistent tensions in the Middle East, particularly the escalating conflict between the U.S. and the Iran-aligned Houthi group, fueled safe-haven demand for the precious metal. Traders also maintained anticipation for early interest rate cuts by the Federal Reserve.
The recent rise in demand for gold was influenced by the intensifying conflict between the U.S. and the Houthi group over the past week, raising concerns about a potential spillover effect in the Israel-Hamas war.
In addition to geopolitical factors, mixed U.S. inflation readings played a role in shaping market sentiment. Traders largely stuck to their bets that the Federal Reserve could initiate interest rate cuts as early as March 2024. This stance kept the dollar subdued and prompted some capital inflows into rate-sensitive assets.
As of 00:27 ET (05:27 GMT), spot gold recorded a 0.2% increase, reaching $2,053.88 per ounce, while gold futures expiring in February rose by 0.3% to $2,057.85 per ounce.
Traders are closely monitoring signals from the Federal Reserve this week, looking for insights into the bank’s outlook. According to the CME Fedwatch tool, market participants are pricing in a 70% chance of a 25 basis points rate cut in March, up from the 64% chance observed last week.
The mixed inflation data contributed to the prevailing belief that a rate cut in March is likely. While the consumer price index inflation slightly exceeded expectations in December, the producer price index inflation fell more than anticipated.
Investor attention now turns to a series of addresses from Federal Reserve officials scheduled for this week. These speeches are expected to provide additional cues regarding the central bank’s stance. Despite the market’s expectations, some Fed officials have downplayed the likelihood of early rate cuts.
The uncertainty surrounding the trajectory of U.S. interest rates is expected to keep gold trading within a narrow range in the short term. However, the precious metal stands to benefit if there are any reductions in lending rates throughout the year.