(Kitco Commentary) - The Federal Reserve's recent policy revision, announced at December's FOMC meeting, indicates a more conservative approach to rate cuts in the coming year. While markets previously anticipated rate cuts totaling 1%, the latest Summary of Economic Projections (SEP) suggests the Fed now plans for a more modest 0.75% reduction.
This adjustment has triggered a significant rise in U.S. Treasury yields, with the 10-year note reaching an eight-month high. The higher yields have dampened gold's appeal, as the precious metal, being a non-yielding asset, typically faces headwinds when yields increase.
Gold has experienced modest declines over two consecutive trading sessions. According to Robert Yawger of Mizuho Securities USA, "Safe haven flows are gravitating to yield and with the situation likely to accelerate as the 5.0000% level comes into focus." Investors are increasingly favoring U.S. debt instruments over gold in their portfolio allocations.
Notably, gold's weakness persisted despite dollar softness, with the dollar index declining 0.62% to 108.044. This represents a slight retreat from recent strength, as the index has risen substantially since October 2023, climbing from around 100 in February to reach an intraday high of 109.343 last Thursday.
The currency's current weakness precedes a crucial week for U.S. employment data, with several key reports scheduled, including job openings, private sector employment figures, and the closely watched non-farm payrolls report due Friday.
As of 4:17 PM ET, February gold futures settled at $2,646.10, down $6.70 (-0.25%). The precious metal's price action has been constrained within a range, caught between supportive factors such as continued central bank accumulation and bearish pressures from declining speculative demand.
In the Treasury market, yields showed mixed movements, with the two-year note yield declining 0.8 basis points to 4.279%, while the 10-year yield increased 2.7 points to 4.629%. Market attention now turns to the upcoming economic releases, particularly the series of employment reports, which could provide fresh direction for both bond yields and gold prices.
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