Gold prices stabilize as dollar rally pauses; focus on $2,000 support

Gold prices stabilized on Tuesday following a significant decline over the past week, as the dollar’s rally took a pause. Market focus now shifts to whether the yellow metal will test a critical support level.

The short-term prospects for gold continue to be clouded by ongoing worries about higher U.S. interest rates, particularly as markets are now factoring in the potential for the Federal Reserve to maintain rates unchanged until June.

Robust U.S. economic data and hawkish remarks from Fed Chair Jerome Powell have been pivotal in shaping this sentiment, contributing to significant downturns in gold prices observed over the last couple of sessions.

The dollar surged to nearly a three-month peak, accompanied by a sharp appreciation in U.S. Treasury yields, signaling expectations of prolonged higher rates. These factors exacerbated pressure on gold prices.

Spot gold remained stable at $2,026.33 per ounce, while gold futures expiring in April held steady at $2,042.40 per ounce by 00:23 ET (05:23 GMT).

$2,000 support under scrutiny amid rising rate concerns

Analysts anticipate spot gold prices testing the $2,000 per ounce level in the upcoming days, particularly if the outlook for U.S. interest rates remains unchanged.

According to the CME Fedwatch tool, traders are pricing in an 83% chance that the Fed will maintain steady rates in March. Additionally, there’s a gradual increase in bets for a similar move in May.

Gold flirted with the $2,000 an ounce mark in January but narrowly avoided breaking below this crucial support level. Further declines below $2,000 could signal deeper losses in bullion prices, especially amid expectations of sustained higher U.S. rates.

The upcoming U.S. inflation data scheduled for next week is anticipated to serve as a pivotal moment for prices, with several Fed officials also scheduled to speak during the week.

Higher-for-longer U.S. rates reduce gold’s appeal by raising the opportunity cost of investing in the precious metal.

Copper prices climb as traders assess challenges in China

Copper prices rebounded on Tuesday following four consecutive sessions of losses, as markets processed additional weak economic indicators from China.

Copper futures expiring in March increased by 0.5% to $3.7920 per pound, recovering from losses exceeding $1 over the previous four sessions.

Weak purchasing managers index (PMI) readings from China, the world’s largest copper importer, primarily affected prices. The data revealed limited recovery in business activity for January, especially in the critical manufacturing sector.

This week, attention shifts to Chinese inflation data for January, scheduled for release on Thursday. The reading is significant as it precedes the week-long Lunar New Year holiday.

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