Gold prices showed some weakness yesterday ahead of the release of US inflation data later this week, a wait-and-see situation driven by the need for greater certainty about the timing of future interest rate cuts.
The price of gold fell by almost 5% from the all-time high of $2,449.89 reached on May 20, in a rally that occurred in an unfavorable context characterized by a strong dollar and high rates.
“Gold has disengaged from its traditional drivers right now and prices are being driven by sentiment in China among new entrants who are taking highly leveraged positions,” said independent analyst Ross Norman. “The problem for them is that they have pushed prices above the level where most other traders see fair value and, therefore, gold is moving in a trading range on relatively light volume with modest participation from US and European investors .”
In China, the yuan hit its weakest point since mid-November against the dollar on Tuesday, supporting demand for gold from local investors seeking a hedge against currency depreciation: “The key question is whether the West adjusts its perception of the fair value of the gold price upwards and participates more fully, or the East lowers its price expectations downwards as gravity takes over,” Norman added.
In the West, traders await US first-quarter gross domestic product (GDP) estimates due on Thursday and Friday’s Personal Consumption Expenditures (PCE) price index report.
“The upside potential of the gold price is limited in the short term, as the first interest rate cut in the United States is expected to take place only at the end of the year,” Commerzbank said in a note.
Meanwhile, physically backed gold Exchange Traded Funds (ETFs), a crucial category of demand, saw inflows of $212 million, or 2.1 tonnes, last week, according to the World Gold Council. Net outflows from the beginning of 2024 are estimated to be $7.3 billion.
Source Reuters
