Gold Holds Below $4,000 on Dollar Resilience and Fed Rate Expectations
Gold prices fell on Tuesday, trading below $4,000 an ounce, pressured by several factors, most notably a stronger US dollar, reduced expectations of a US interest rate cut, and easing trade tensions between the US and China.
Key Market Drivers
- Dollar Strength and Shifting Interest Rate Expectations
The US dollar held near its highest level in more than three months, limiting gold's gains.
This comes as traders reassessed the likelihood of a US interest rate cut before the end of the year.
Federal Reserve Chairman Jerome Powell indicated that another rate cut this year is "not a given," despite the Fed's decision last week to cut rates for the second time this year.
- Reduced Safe-Haven Demand
The trade agreement reached between the US and China last week helped ease trade tensions between the two economic giants, reducing demand for gold as a safe haven.
- Chinese Factors
An additional factor that could affect gold markets is China's decision to remove the long-standing tax incentive on gold sales. This could lead to higher domestic prices and dampen consumer demand in one of the world's largest bullion markets.
Market Expectations and Upcoming Data
Market estimates currently indicate a 65% probability of an interest rate cut in December, a significant drop from over 90% last week.
Investors are eagerly awaiting the release of the US ADP employment data due on Wednesday, as well as the ISM Purchasing Managers' Index (PMI) this week, which may provide clearer indications of the direction of interest rate cuts.
Looking Ahead
If the ADP data shows another decline, it could present an opportunity for gold to resume its upward trajectory, as this would reinforce expectations of a more accommodative monetary policy from the Federal Reserve.
Gold remains in a wait-and-see mode in the near term, as its direction is influenced by conflicting factors, including the pressure of a stronger dollar on one hand, and expectations regarding monetary policy and upcoming economic data on the other.
But in the medium and long term, gold's overall trend remains upward, with expectations of breaking through last month's peak and setting new record highs.
