Forex Signal Bullish

Gold gains on softer dollar as markets await more Fed cues

Gold prices saw a rebound on Tuesday, boosted by a weaker U.S. dollar, as investors eagerly awaited upcoming U.S. economic data that could influence the Federal Reserve’s policy meeting next week.

As of 1022 GMT, spot gold was up 0.3% at $2,026.95 per ounce, and U.S. gold futures also experienced a 0.3% increase, reaching $2,028.60.

The softened U.S. dollar played a significant role in the uptick of spot gold, with the dollar index falling 0.1%. Han Tan, Chief Market Analyst at Exinity Group, noted, “The softer U.S. dollar is allowing spot gold to edge higher, despite diluted bets for a Fed rate cut in March.” However, Tan cautioned that gold might dip below the $2,000 level if expectations for a Fed rate cut in March continue to diminish.

The U.S. dollar, down 0.1% against a basket of currencies, enhanced the attractiveness of gold priced in greenbacks for holders of other currencies.

Federal Reserve officials indicated last week that more inflation data was needed before making any judgments about a rate cut, and the baseline for potential cuts was set in the third quarter.

The focus this week will be on the U.S. flash PMI report on Wednesday, fourth-quarter advance GDP estimates on Thursday, and personal consumption expenditures data on Friday. Market expectations lean towards the Fed maintaining unchanged rates at the end of the policy meeting on Jan. 30-31. CME’s FedWatch Tool reflects a shift in the timing of the anticipated first interest rate cut.

The European Central Bank (ECB) is set to meet on Thursday, with expectations for steady monetary policy. Lower interest rates typically decrease the opportunity cost of holding gold.

Tim Waterer, Chief Market Analyst at KCM Trade, pointed out, “If central banks continue to counter the prevailing narrative that rate cuts will occur sooner rather than later, this could pressure the gold price from a yield perspective.”

In the precious metals market, spot silver rose 0.6% to $22.24 per ounce, platinum climbed 1% to $900.93, while palladium experienced a 0.2% decline, settling at $935.13.