Does the Fed's inflationary erode the appeal of gold?
The Federal Reserve is the dominant force in gold price action, with traders closely tracking their response to inflation data. The Fed's preferred inflation gauge, the Personal Consumption Expense (PCE) Index, rose 0.3% in January, collaborating with expectations. Core PCE, which removes volatile foods and energy prices, rose 2.6% year-on-year, slightly lower than December's 2.7%.
The data strengthened expectations that the Fed could delay interest rate cuts. This is a disadvantageous scenario for money. The futures market still priced 79% of the rate cuts in June, but policymakers are cautious and do not provide a clear signal for impending easing. Long-distance interest rates reduce gold's appeal as non-revenue assets and lower prices.
Trade war tensions strengthen the dollar, not gold
Trade tensions have been rising in the gold struggle this week, but instead of increasing the safe home-based demand for bullion, uncertainty has driven investors into the US dollar. President Donald Trump reaffirmed that a 25% tariff on Mexican and Canadian goods would come into effect in March along with a 10% mandate on Chinese imports.
As investors sought stability, uncertainty strengthened the dollar rather than driving gold inflows. The dollar index rose nearly 0.9% this week, reaching a two-week high, making gold more expensive for foreign buyers and on-demand weights. Historically, trade disputes have tended to support gold prices, but this time the market has instead favored cash and greenback.
Are you making profits and increasing your gold weakness?
Gold's recent rally has spurred a wave of profitability at an all-time high of $2,956.31. Analysts at Kitco Metals and Zaner Metals noted that stock market losses have caused margin calls and forced traders to liquidate gold positions. This widespread Dereval across the financial markets has put downward pressure on gold, exacerbating its pullback.
