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Gold price remains broadly upbeat amid geopolitical uncertainty, weakening US Dollar

February 22, 2024

LONDON (February 22) Gold price (XAU/USD) faces a nominal sell-off after printing a fresh weekly high above $2,030 in Thursday’s European session. The precious metal extends its winning streak to the sixth trading session amid a weak outlook for the US Dollar and escalating Middle East tensions. Generally, the appeal for safe-haven assets such as Gold improves during geopolitical uncertainty.

The US Dollar is under pressure even though the Federal Open Market Committee (FOMC) Minutes of the late January policy meeting indicated that the majority of Federal Reserve (Fed) policymakers are in no hurry to unwind the restrictive monetary policy stance. 

Fed policymakers are expected to keep interest rates unchanged in the range of 5.25%-5.50% until they get convinced that price stability can be achieved. Easing price pressures for some months could build confidence among Fed policymakers that inflation will sustainably decline to the 2% target.

On the geopolitical front, Middle East tensions have escalated as Israel intensifies its attacks in Rafah, which is a Palestinian city at the southern end of Gaza. Last week, Israeli Defense Minister Yoav Gallant identified Rafah as a shelter for over 1.4 million Palestinian refugees.

Daily digest market movers: Gold price clings to gains while US Dollar remains under pressure

  • Gold price jumps higher above $2,030, supported by weak US Dollar and geopolitical tensions.
  • The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, dives to 103.50 despite FOMC Minutes for the January policy meeting being aligned with market expectations.
  • The FOMC Minutes for the January meeting showed that most Federal Reserve policymakers are concerned about the consequences of premature rate cuts, while a few pointed to economic risks associated with the overly stretched restrictive monetary policy stance.
  • Price pressures could flare up again if the Fed rushes to reduce interest rates.
  • Fed policymakers want to see more evidence that inflation will sustainably decline to the 2% target before commencing rate cuts.
  • Sticky inflationary pressures and a resilient US economy have pushed back expectations for rate cuts in May.
  • The CME FedWatch tool shows that interest rates are expected to remain unchanged in the range of 5.25%-5.50% in the March and May monetary policy meetings. However, chances for a rate cut by 25 basis points (bps) in the June policy meeting are around 53%.
  • Richmond Federal Reserve Bank Thomas Barkin said on Wednesday that high inflation data in January has made the Fed’s job “harder.” However, Barkin added, “We should not put too much weight on the month's information given known seasonality issues."
  • Thomas Barkin showed uncertainty over the achievement of a soft landing by the Fed.
  • Meanwhile, investors await fresh data to get more cues about the outlook on interest rates. The S&P Global will report preliminary PMIs for February, which will be published at 14:45 GMT. 
  • The Manufacturing PMI is forecasted to come out lower to 50.5 from 50.7 in January. The Services PMI, which represents a sector that accounts for two-thirds of the United States economy, is expected to release at 52.0, lower than the prior reading of 52.5.

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