●The dollar continues to rise, exerting downward pressure on gold prices.
●The Israel-Hamas conflict did not escalate, reducing the risk premium and posing challenges for the gold price.
●Expectations of upward revision in China's GDP growth forecast may lead to an increase in gold prices.
With the dollar rebounding, gold prices continued to decline, reaching around $1,970 during Wednesday's Asian session.
Gold prices are also facing challenges, partly due to traders factoring in the decrease in the risk premium resulting from the Israel-Hamas conflict. The conflict did not escalate, dampening the demand for safe-haven assets like gold.
The International Monetary Fund (IMF) revised China's GDP growth forecast, expecting a growth rate of 5.4% for 2023, higher than the previous expectation of 5.0%; and a growth rate of 4.6% for 2024, surpassing the earlier projection of 4.2%. An improved economic situation in China could lead to an increase in gold prices.
Furthermore, the recent decline in US Treasury yields appears to be linked to optimistic sentiment on Wall Street, suppressing the demand for safe-haven assets like gold. Market participants are speculating on the possibility of the Federal Reserve delaying interest rate hikes in future meetings. Weaker-than-expected nonfarm payroll data released last Friday and the dovish stance taken by the Fed at the November meeting have amplified this sentiment.
On Monday, Federal Reserve Board member Lael Brainard stated that current interest rate policies are believed to be sufficiently restrictive to maintain price stability.
However, on Tuesday, Minneapolis Federal Reserve Bank President Neel Kashkari cautioned against prematurely declaring the end of the Fed's rate-hike cycle, leading to a stronger dollar. Given the strong economy, Kashkari expressed doubts about the adequacy of current policies and suggested that inflation is on the rise, potentially requiring further policy tightening.
Additionally, Chicago Federal Reserve Bank President Austan Goolsbee acknowledged progress in addressing inflation and hinted that the focus may transition to determining how long rates should be maintained at current levels.
Investors will closely watch Federal Reserve Chair Jerome Powell's speech on Wednesday at a conference hosted by the Bureau of Economic Analysis and Statistics in Washington, D.C., to gain further insights into potential rate paths.