Investors Abandon Gold amid Steady Prices

Gold is exhibiting neutral movement this week, with prices seeing a 0.3% rise to $2044 per troy ounce on Wednesday, followed by a 0.3% retreat to $2030 on Thursday. The market appears to have established a fragile balance above the support range of $2010-2030 per ounce.

Predicting how long this phase of relatively stable prices will continue is challenging. From a technical perspective, this could persist for another couple of weeks. However, macroeconomic fundamentals seem to favor a potential decline in prices to the range of $1910-1930.

The shockingly positive Nonfarm Payrolls report for January, which showed the creation of 353,000 new jobs and an unemployment rate of 3.7%, raises inflation risks. Additionally, the acceleration of average hourly earnings to 0.6% MoM in January (compared to 0.3% MoM in December) further supports the idea of potential downward pressure on gold prices.

The Federal Reserve (Fed) is working to temper expectations of imminent interest rate cuts. Initial expectations for an early rate cut in March are now deemed unlikely, with only 18.5% of investors supporting this view (compared to 76% in early January). Doubts about cuts in May are also growing, with 55.4% of investors now betting on it, down from 59.6% at the beginning of the week.

Rising U.S. 10-year Treasuries yields, reaching 4.19% from 3.87% at the start of January, are adding pressure on gold prices. SPDR Gold Trust (GLD) reported capital outflows of $261.7 million last week, marking the sixth consecutive week of outflows. This trend mirrors the situation in September-October 2023 when gold lost 6.6%. However, this time, gold prices have remained steady with a 1.5% loss since the beginning of 2024.

The Fed's recent hawkish stance, emphasized by Chairman Jerome Powell and supported by Minneapolis Federal Reserve President Neel Kashkari, along with positive PMI readings indicating economic expansion, makes it challenging for gold to maintain current price levels. The only potential factor providing support to gold prices could be continued geopolitical tensions in the Middle East, though a ceasefire is anticipated soon. The presence of a symmetrical triangle pattern on the chart may be seen as an indication of an impending resolution in the Middle East, potentially leading to a decline in gold prices towards the target range of $1910-1930 per ounce.