Gold slips as traders weigh Fed’s monetary policy path

Gold prices edged lower on Tuesday as traders assessed the likely path of the US Federal Reserve’s monetary policy after data showed a slump in US manufacturing activity and as Opec+’s production cut sparked inflationary risks.

Spot gold was down 0.2% at $1,980.39 per ounce at 3.14am GMT. US gold futures dipped 0.1% to $1,997.70.

The dollar index was slightly higher, making bullion expensive for overseas buyers.

Gold in the near term could undergo “consolidative price action in the absence of a fresh catalyst and as markets monitor the extent of price gains in oil, as that may throw a curve ball on inflation outlook and complicate monetary policy decision”, said OCBC FX strategist Christopher Wong.

Oil prices steadied with investors’ attention shifting to demand trends and the effect of higher prices on the global economy.

Gold prices fell on Monday after a surprise cut in Opec+ crude production was announced at the weekend. But prices reversed course to rally by 1% as the dollar stumbled after the release of weak US economic data.

US manufacturing activity slumped in March to the lowest level in nearly three years as new orders plunged. Analysts said activity could fall further due to tighter credit conditions.

Bullion is seen as a hedge against inflation, but higher rates increase the opportunity cost of holding the non-yielding asset.

Markets see a 60.1% chance of the US Fed hiking rates by a quarter point in May. But the likelihood of a rate cut later this year also rose.

“Over the short-term [Q2], we expect gold to be further supported by a scenario where both inflation and interest rates could peak,” Marex metals analyst Edward Meir wrote in a note.

“If we are right, this should send the dollar lower and ‘clear the runway’ for an additional move higher.”

Spot silver slipped 0.5% to $23.88 per ounce, platinum eased 0.1% to $984.99 and palladium ticked 0.1% lower to $1,458.42.

Reuters