Gold prices experienced a modest rise on Thursday, stabilizing after a notable decline earlier in the week, as doubts about an imminent interest rate cut by the Federal Reserve grew stronger in light of robust U.S. economic data.
The precious metal, commonly known as the yellow metal, faced a considerable setback this week, erasing most of the gains achieved in December. The risk of falling below the crucial $2,000 an ounce level loomed large as the dollar and Treasury yields rebounded.
Despite increased military activity in the Middle East, gold did not witness a significant surge in safe-haven demand. Traders, instead, turned towards the dollar amidst the anticipation of higher U.S. interest rates.
However, gold found a measure of support around the $2,000 an ounce level, experiencing a mild recovery on Thursday.
As of 23:56 ET (04:56 GMT), spot gold registered a 0.1% increase, reaching $2,008.89 an ounce. Meanwhile, gold futures expiring in February rose by 0.2% to $2,010.40 an ounce. Both instruments were down nearly 2% for the week.
The skepticism surrounding an early interest rate cut intensified after the release of stronger-than-expected retail sales data for December, causing the dollar to surge to one-month highs. Concurrently, Treasury yields saw extended gains, reinforcing recent statements from Federal Reserve officials indicating a commitment to maintaining higher rates for a more extended period.
Traders, responding to this sentiment, scaled back their expectations of a rate cut as early as March 2024, according to the CME Fedwatch tool. The probability of a 25 basis point cut in March currently stands at 59.8%, down from 67.3% the previous week.
The allure of gold tends to diminish with higher interest rates, as they elevate the opportunity cost of investing in the precious metal. Despite a brief surge in December, driven by expectations of early interest rate cuts, the outlook for gold has become uncertain in the face of prolonged expectations of higher rates.