The precious metals markets experienced a week of sharp fluctuations, with gold prices between unprecedented record highs, periods of relative stability, and a significant decline at the end of trading. These divergent movements reflected the uncertainty gripping investors and the direct impact of economic data released from the United States on the markets.
Gold prices declined as a result of US interest rates
Gold continued its decline at the end of the week, pressured by positive US economic data that reduced market expectations of an imminent interest rate cut by the Federal Reserve. In numerical terms, spot gold fell 0.4% to $4,598.52 per ounce. This decline coincided with a relative easing of geopolitical concerns, diminishing gold's appeal as a safe-haven asset that investors typically turn to during times of turmoil.
The inverse relationship between gold and the dollar
Economically, gold has a traditional inverse relationship with interest rates and the strength of the US dollar. As a non-yielding asset (it doesn't offer periodic interest like bonds), persistently high interest rates, or expectations that they won't be lowered soon, increase the "opportunity cost" of holding gold, prompting investors to shift towards the dollar and bonds. This explains the selling pressure gold experienced at the end of the week.
Record highs midweek
In contrast to the close, midweek saw gold prices a historic high. US inflation data at the time bolstered bets that the Federal Reserve might cut interest rates this year. Spot gold jumped 0.4% to $4,609.69 an ounce, after touching a record high of $4,634.33 during the session. February futures also rose 1.0% to $4,617.90.
Gold as a safe haven and overcoming psychological barriers
At the start of last week, gold successfully broke through a key psychological barrier of $4,600 an ounce for the first time, driven by a surge in demand for safe-haven assets. This came amid escalating geopolitical tensions and investor monitoring of developments in various regions, including Iran and Greenland, as well as ongoing debate surrounding allegations of political influence on Federal Reserve Chairman Jerome Powell's decisions.
Analysts point out that gold's stability at the end of the week at $4,619.54 per ounce in spot trading, despite the previous decline, reflects the markets' desire to hold firm and await new catalysts to determine the next course, whether it be new inflation data or geopolitical developments that could restore momentum to the precious metal.
