On Monday (February 16), international gold prices experienced a pullback in light trading, influenced by the closure of the stock markets due to the U.S. Presidents’ Day and the Chinese New Year holiday. After a significant 2.5% surge in gold prices last Friday, investors engaged in profit-taking, leading to a decline of over 1% in spot gold prices on Monday, hovering around $4,986 per ounce.
Chief analyst Tim Waterer from KCM pointed out that due to light trading and a lack of new catalysts for upward movement, gold retraced some of its gains following the release of the U.S. Consumer Price Index (CPI) last Friday.
Furthermore, he added that profit-taking was also a contributing factor to the price correction on Monday.
Despite short-term fluctuations, the market remains optimistic about the long-term trend of gold.
Last Friday, data released by the U.S. Department of Labor showed that the CPI in January grew by 0.2% compared to the previous month, below the economists’ forecast of 0.3%, and increased by 2.4% year-on-year, lower than the expected 2.5%. This significant slowdown from the previous value of 2.7% indicates a visible easing of inflationary pressures, strengthening market expectations for a Fed rate cut, subsequently lowering U.S. bond yields and providing bullish support for non-yielding gold assets.
Austan Goolsbee, President of the Federal Reserve Bank of Chicago, recently stated that policy rates may be cut, while also cautioning that service sector inflation remains elevated.
The market is currently assessing the Fed’s policy path. Manav Modi, a commodity analyst at the Indian financial services company Motilal Oswal, believes that the Fed may cut rates by 25 basis points in March and June, although data compiled by the London Stock Exchange Group (LSEG) suggests that market participants currently anticipate a total rate cut of 75 basis points this year, with the first cut likely to be delayed until July.
Geopolitical tensions continue to provide support for gold as a safe-haven asset. The U.S. has ordered the deployment of the USS Gerald R. Ford aircraft carrier to the Middle East due to stalled progress in negotiations over the Iran nuclear agreement. Additionally, according to reports quoting U.S. officials, the military is preparing for potential conflicts, and the significant escalation of geopolitical risks has markedly increased demand for safe-haven assets.
In terms of physical demand, the Asian markets are showing strength. Despite the ongoing Chinese New Year holiday, China’s interest in gold purchases remains high, with Shanghai warehouse inventories surpassing 100 tons.
Analyst Modi stated that despite the recent price pullback, the technical aspect of gold prices still maintains a broadly bullish outlook. Following a Fed rate cut, there is expected to be further inflow of funds into gold assets.
Looking ahead, analysts believe that the movement of the U.S. dollar will be crucial. Waterer predicted that for gold to push towards $6,000 by the end of the year, a resumption of the dollar’s decline may be necessary.
The focus of the market this week will shift to the upcoming release of the Federal Reserve meeting minutes and the Personal Consumption Expenditures (PCE) price index, which will provide more clues on future interest rate trends.
Furthermore, the market is closely monitoring the potential impact of U.S. tariff measures on inflation.