The gold price has fallen into bear territory for the second day in a row on Friday, due to a stronger dollar and higher Treasury yields.
The dollar was up on Friday as higher Treasury yields and hotter inflation in America supported the rise.
Recent US data shows a resilient US economic situation with inflation on the rise. Donald Trump’s tariffs on imports and restrictions on immigration will likely increase consumer prices. This will force the Federal Reserve to be cautious with its monetary easing in 2019.
The February gold contract at COMEX closed on Tuesday, Feb. 6, 2012, at $2,691.26 an ounce. This is down 0.7% compared to the previous close.
Gold is expected to finish the week modestly higher due to increased demand for safe-haven assets as a result of geopolitical tensions.
Focus on Fed policy
Investors’ attention will be focused on the US Federal Reserve policy meeting next week.
CME FedWatch shows that traders have priced in 96.7% of the probability that the US central banks will cut rates by 25 basis point next week.
The market is worried about the Fed’s rate-cutting cycle next year, as the inflation in the US continues to be sticky. The labour market also remained resilient.
The dollar has been supported, and the precious metal’s price has fallen.
A stronger dollar increases the price of commodities like gold for buyers from abroad, thus reducing demand.
Alcala said:
As markets settled and attention shifted towards the US economy, the momentum of the safe-haven commodities faded.
Gold’s recent rise is unlikely to last
Gold prices have recovered in the last few weeks to trade at or above $2,650 an ounce.
The price of gold rose to $2,761.30 an ounce, a new high for the month, on Thursday, due to increased geopolitical tensions and expectations of a rate reduction next week.
A stronger dollar, and a possible slowdown in the Fed’s rate cutting cycle by 2025 do not bode well.
The US Fed is expected to cut rates only twice next year. One in March, and one in June.
Commerzbank AG says that the Fed rate cut next week is already priced into the market.
Carsten Fritsch said that in a recent report, the only argument could be the fact that the Chinese central banks bought gold for the first time since seven months in November.
Fritsch stated that the correction in gold prices on Thursday was not surprising due to a strong dollar and higher yields.
Fritsch stated that the recent gold rally is unlikely to continue in 2019.
This post Gold struggles with dollar strength; rally unlikely by 2025 may change as new information unfolds
