Reasons for today's decline in the precious metal
Gold prices fell by more than 1% during trading on Monday, affected by a decline in trading volumes due to the closure of US and Chinese markets for public holidays, as well as profit-taking after the yellow metal's strong 3% rise in the previous session.
Prices fell to around $4,964 per ounce before paring losses and stabilizing again near $5,000 per ounce, amid limited movements reflecting weak liquidity in global markets.
Market closures affect trading volume
The decline in liquidity came as US markets closed for Presidents' Day, while Chinese markets closed to celebrate the Lunar New Year, leading to a significant drop in trading activity.
Periods of low liquidity typically lead to less stable price movements, as markets become more susceptible to short-term volatility driven by position squaring.
Fed statements and expectations of interest rate cuts
On the monetary policy front, Chicago Fed President Austin Goolsbee stated that interest rates may fall later, but noted that inflation in the services sector remains high.
Market participants expect the Federal Reserve to keep interest rates unchanged at its next meeting in March, with a total cut of 75 basis points likely this year, with the first possible cut in July.
Interest rate expectations are one of the most important factors affecting gold prices, as lower interest rates reduce the opportunity cost of holding the non-yielding metal.
Geopolitical tensions support the yellow metal
Despite the current decline, gold remains supported by geopolitical uncertainty, especially with reports that the US is prepared to launch a prolonged military operation against Iran if a decision is made to do so, despite ongoing nuclear talks between Washington and Tehran.
However, any potential escalation could boost demand for gold as a safe haven.
The metal is also supported by:
- Continued purchases by central banks
- Investors turning away from bonds and sovereign currencies
- Concerns about the stability of financial markets
What can the market expect this week?
Investors are awaiting several important US data releases that could determine the path of gold prices in the coming period, most notably:
- Minutes of the Federal Open Market Committee (FOMC) meeting
- Preliminary estimate of US gross domestic product (GDP)
- Personal consumption expenditure (PCE)
inflation data This data will provide clearer signals about the timing of the first possible interest rate cut, which is the main factor currently being monitored by gold traders.
Gold price forecast
Gold is currently trading sideways around the $5,000 per ounce level, supported by strong fundamentals, but facing short-term pressure from low liquidity and profit-taking. Our forecast now points to another rise, with the current downward corrections being nothing more than profit-taking and healthy corrections to rebalance buying positions.
The next trend for the yellow metal is likely to be determined by:
- Developments in US monetary policy
- Upcoming economic data
- The course of geopolitical tensions
