The price of gold decreased by 0.3% amid increased risk appetite and a reassessment of the prospects for the Fed's monetary policy. However, geopolitical uncertainty in the Middle East limits further price declines.
Gold is also slightly supported by the negative dynamics of the US currency and a drop in US bond yields. The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) fell by 0.08% to 103.17.
Last week, the price of gold fell by 1.09% (the largest decline in 6 weeks), as Fed policymakers signaled that an interest rate cut would probably begin only in the 3rd quarter. According to the CME FedWatch Tool, markets see a 43.4% probability of a 25 basis point rate cut at the Fed meeting in March and a 84.6% probability of a rate cut in May, with 132 basis points of cuts priced in for this year.
This week, investors will focus on US PMI, GDP data, as well as statistics on personal income and spending, which will help clarify the current state of the economy and provide clues about the Fed's further actions. Although experts no longer predict a recession on the horizon, they believe that real GDP growth will slow down in the coming quarters. Overall, the U.S. economy remained remarkably resilient in the face of the Fed's cumulative 525 basis point rate hike. GDP is expected to grow by 2% in the 4th quarter after an increase of 4.9% in the 3rd quarter. In addition, real GDP is projected to increase by an average of 2.4% per year during 2023.