Gold Prices Dip as U.S. Inflation Fuels Fed Hawkishness
Gold prices experienced a slight decline of 0.05%, settling at ₹85,481 amid persistent inflation concerns in the United States, which have reinforced expectations of a hawkish stance from the Federal Reserve. Recent data for January revealed that the headline inflation rate unexpectedly rose to 3%, while the core inflation rate increased to 3.3%, surpassing market forecasts. These inflationary trends have instigated worries among investors that the Fed may delay any intended rate cuts, prompting a shift toward interest-bearing assets rather than bullion.
Fed’s Stance on Interest Rates
In a recent statement, Federal Reserve Chair Jerome Powell emphasized the strength of the U.S. economy, suggesting that there is no immediate need for a reduction in interest rates. Powell’s remarks highlighted the delicate balance that the Fed must maintain, considering the risks associated with both premature and delayed policy easing. This maintainance of a hawkish outlook has further influenced market behavior, as investors remain cautious.
Diminished Physical Demand in India
Despite the recent challenges facing gold prices, they have still managed to remain over 10% higher since the beginning of the year, largely underpinned by dovish monetary policies from major central banks, including the European Central Bank (ECB), Bank of England (BoE), Reserve Bank of India (RBI), and Bank of Canada (BoC). However, physical demand for gold in India has weakened as record-high prices deterred potential purchasers. Dealers in the Indian market have begun offering discounts of up to $31 per ounce over official prices to attract buyers.
Global Demand Trends
The demand for gold has also been lackluster in China following the Lunar New Year, with prices trading at a discount of $7 to $10 per ounce. Meanwhile, Japanese gold traders reported discounts averaging $3, with some instances of premiums reaching $1.
According to the World Gold Council, global jewelry demand is projected to decline by 11% in 2024, further complicating the outlook for gold consumption. In India, gold consumption is expected to moderate between 700 to 800 metric tons in 2025, compared to approximately 802.8 tons in the previous year.
Market Technicals
On a technical level, the gold market is exhibiting signs of long liquidation, with open interest witnessing a minor decline of 0.09% to 16,417 as prices dipped by ₹42. Analysts observe that gold prices are currently finding support at ₹84,795, with potential for further downside to ₹84,100. Conversely, resistance is noted at ₹85,925; a breakout above this resistance level could propel prices to approximately ₹86,360.
Conclusion
As the market grapples with inflationary pressures and shifts in demand dynamics, gold’s position remains emblematic of broader economic conditions. Investors and analysts alike will be closely monitoring both the Federal Reserve’s policy direction and the responses from major markets such as India, China, and Japan as they navigate these complex factors in the months ahead.
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