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Gold Price Retreats Below $2,020 Amid Renewed Dollar Strength and Ebbing Rate Cut Expectations

2 months ago

The price of gold saw a downturn early on Tuesday, slipping below the $2,020 mark after a promising start to the week that saw a three-day recovery rally. This decline comes as the upside potential for gold prices appears to be limited by a resurgence in the US dollar and US Treasury bond yields, with markets anticipating the return of American traders.

Risk sentiment remains subdued on Tuesday, with investors failing to find optimism despite the announcement of a larger-than-expected Loan Prime Rate (LPR) by the People’s Bank of China (PBoC). Disappointment stems from the absence of additional fiscal policy support measures from China, leaving markets underwhelmed.

Traders are also digesting the recent shift in expectations regarding Federal Reserve (Fed) rate cuts, with optimism diminishing in the wake of last week’s robust US Consumer Price Index (CPI) and Producer Price Index (PPI) data. At the start of the year, markets were pricing in six Fed rate cuts, but now expectations have reduced to only three, with a 76% chance of a cut in June. The possibility of a rate cut in March has nearly been ruled out.

The prevailing negative sentiment, coupled with dwindling expectations of imminent Fed rate cuts, continues to bolster US Treasury bond yields and the US dollar at the expense of non-yielding gold.

Looking ahead, the gold market is eagerly awaiting Wednesday’s release of the Fed Minutes and Thursday’s US S&P Global business PMI data, as no significant US economic data releases are expected on Tuesday. Additionally, appearances from Fed officials could influence market expectations regarding a delayed Fed policy pivot, thereby impacting the value of the US dollar and the price of gold.

From a technical perspective, on the daily chart, gold faced rejection at the $2,023 level, signaling renewed selling interest and suggesting a potential pullback towards the $2,000 threshold. This level is expected to provide strong support. However, to confirm further downside momentum, gold sellers would need to breach the previous day’s low of $2,011 before testing rising trendline support at $2,005 – $2,000. Conversely, breaking above the immediate resistance at $2,023 could pave the way for a recovery towards $2,033, with further upside targets at the February 7 high of $2,044 and the psychological barrier of $2,050.

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