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Is the Fed’s Inflation Stance Eroding Gold’s Appeal?
The Federal Reserve remains a dominant force in gold’s price action, with traders closely tracking its response to inflation data. The Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation gauge, rose 0.3% in January, aligning with expectations. Core PCE, which strips out volatile food and energy prices, increased 2.6% year-over-year, slightly lower than 2.7% in December.
This data reinforced expectations that the Fed may delay interest rate cuts—an unfavorable scenario for gold. Futures markets still price in a 79% probability of a rate cut in June, but policymakers remain cautious, offering no clear signals of imminent easing. Higher-for-longer interest rates reduce gold’s appeal as a non-yielding asset, pressuring prices lower.
Trade War Tensions Strengthen the Dollar, Not Gold
Rising trade tensions added to gold’s struggles this week, but instead of boosting safe-haven demand for bullion, the uncertainty drove investors into the U.S. dollar. President Donald Trump reaffirmed that 25% tariffs on Mexican and Canadian goods will take effect in March, alongside an additional 10% duty on Chinese imports.
Rather than spurring gold inflows, the uncertainty strengthened the dollar as investors sought stability. The dollar index climbed nearly 0.9% this week, hitting a two-week high, making gold more expensive for foreign buyers and weighing on demand. Historically, trade conflicts tend to support gold prices, but this time, the market favored cash and the greenback instead.
Are Profit-Taking and Deleveraging Adding to Gold’s Weakness?
Gold’s recent rally to $2,956.31, an all-time high, prompted a wave of profit-taking. Analysts at Kitco Metals and Zaner Metals noted that stock market losses triggered margin calls, forcing traders to liquidate gold positions. This broad deleveraging across financial markets added downward pressure on gold, exacerbating its pullback.
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