Weak Dollar Drives Bullion High as Yields Plummet

18 Jan 2024 , 10:14 AM

A weaker US dollar and lower Treasury yields helped drive up gold prices on Thursday, but the metal remained close to five-week lows as investors lost hope regarding rate cuts following hawkish remarks from central bank officials and strong data.

One day after dropping to $2,001.72, its lowest level since December 13, spot gold increased 0.2% to $2,010.59 per ounce. Futures for US gold increased by 0.3% to $2,012.40.

The value of the US dollar decreased by 0.2%, lowering the cost of gold for holders of foreign currencies. The benchmark 10-year Treasury note yield in the US fell as well.

December’s higher-than-expected growth in U.S. retail sales helped to keep the economy strong going into 2024.

Later in the day, Raphael Bostic, President of the Atlanta Federal Reserve, is scheduled to speak at two different events.

Citing to the Financial Times on Sunday, Bostic warned that if policymakers cut rates too quickly, inflation would ‘see-saw’ and that the rate of decline towards the central bank’s 2% target will probably slow down in the coming months.

According to LSEG’s interest rate probability software, IRPR, money markets were pricing in a 61% possibility of a March easing while betting on 142 basis points of Fed rate decreases this year.

Holding bullion has a lower opportunity cost when interest rates are lower.

In December, Britain’s annual rate of inflation in consumer prices increased for the first time in ten months.

Participants in the market kept an eye on events in the Middle East while Israel continued its attack on the southern Gaza Strip.

After militants claimed to have carried out their second attack on an American-operated vessel in the Red Sea region this week, the United States launched another wave of strikes against Houthi targets in Yemen.

Palladium increased 1.2% to $926.54, platinum increased 0.2% to $885.38, while spot silver increased 0.4% to $22.61 per ounce.

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