Gold rebounds from three-week low on dollar retreat

Tuesday saw a recovery in gold prices from a three-week low, supported by a decline in the value of the dollar following an official US report that revealed consumer expectations for lower inflation solidified bets on Federal Reserve interest rate reduction.

As of 03:16 GMT, spot gold was up 0.3% at $2,034.49 per ounce, having fallen as low as three weeks earlier on Monday. Futures for US gold increased by 0.4% to $2,040.60 an ounce.

According to a Federal Reserve research released on Monday, consumers in New York (NY) anticipated decreased inflation over the next several years, along with decreasing income and expenditure.

The NY Fed survey may help to provide some support for gold prices as it brings “further relief to the inflation picture and has provided more room for Fed officials to consider earlier rate cuts in 2024”, said IG market strategist Yeap Jun Rong.

The dollar index weakened 0.1%, making bullion more attractive for other currency holders.

Lower interest rates decrease the opportunity cost of holding non-yielding bullion.

However, “given the strong rebound in risk-on sentiments overnight, gold prices have to balance a dovish rate outlook with potential safe-haven outflows as well,” added Rong.

Last week’s stronger-than-expected jobs data, coupled with the latest Fed minutes that noted an uncertainty over timings of rate cuts, tempered sentiment for an early interest rate cut in the United States.

Market participants are pricing in an about 62% chance of a rate cut by the U.S. central bank in March, down from a nearly 90% probability seen before the New Year, according to the CME FedWatch tool.

Investors now await Thursday’s US consumer price inflation report for further clarity on the scale and depth of Fed’s rate cut.

Spot silver rose 0.3% to $23.15 per ounce, while platinum climbed 0.4% to $949.29, and palladium gained nearly 1% to $1,007.01.