The prices of gold edged higher on Monday as markets strengthened their bets on multiple interest rate cuts by the US Federal Reserve in 2023. Gold futures climbed over half a percent as traders are now pricing in high probabilities of at least three rate reductions by the Fed in the next one year. Boosting sentiment further was the weaker dollar against other currencies.
Analysts believe that growing expectations of aggressive monetary easing by the Fed amid persistent inflation pressure provided support to bullion. Fed policymakers have signalled they remain committed to lowering rates to tame inflation that has been hovering above the 2% target. The softer dollar also made gold less expensive for holders of other currencies, increasing demand.
Major factors like lower interest rates and a weaker dollar typically boost demand for gold as they decrease the opportunity cost of holding non-yielding bullion. Spot gold prices rose 0.1% to $2,166.39 per ounce in early Asian trade on Monday. US gold futures also climbed 0.4% to $2,167.70.
Technical analysts suggest gold may consolidate in a narrow range but the broader trend remains bullish. Prices could see resistance at $2,180 and support at $2,150 levels. Market participants will be eyeing the key US PCE inflation data this week for further cues on the Fed's rate trajectory. A print above estimates could raise chances of an even more aggressive tightening path.
Going forward, bullion traders will closely track developments around inflation, monetary policies of central banks and geopolitical tensions for near-term price direction. But likelihood of multiple rate cuts along with a weaker dollar provides support for precious metals like gold at moderately higher levels.
