Gold to Shine as Rate Cut Bets Persist: Key Support Levels to Watch for Dip-Buyers

investing.com:

Gold and silver started Monday’s session a touch higher, before easing off their best levels at the time of writing.

With the rates market refusing to reduce the aggressive rate cuts it has priced in for the Fed, gold investors are facing a tricky situation.

If the Fed pushes back against those expectations more forcefully moving forward, this could undermine gold. But it is not all about the Fed. The long-term outlook on gold remains as positive as any time.

A two-day rally on Thursday and Friday helped gold finish modestly higher last week. Interestingly, those gains came despite the much-anticipated US CPI data showing higher-than-expected inflation in December.

Despite the hotter CPI data, the market’s pricing of a March rate cut by the Federal Reserve rose somewhat by the end of the week to around 75% probability. Correspondingly, bond yields dropped, and up went gold and silver.

At the start of this week, markets are now 80% sure of a rate cut in March, according to the CME’s FedWatch tool as rate expectations remain disjointed from data in the US.

Fed officials pushing back against a sooner rate cut has so far fallen on deaf ears as FOMC’s Bostic found out, who thinks rates need to stay on hold until at least summer.

A total of 168 basis points of easing is indicated by the Fed funds futures. That is at least 6 rate cuts of the standard 25 basis points.

Thus, it is possible we could see a stronger pushback against such an aggressive easing expectation by the Fed Chairman Jay Powell himself at some point, which remains a key risk facing gold and other dollar-denominated risk assets.

This may have been why managed funds and large speculators reduced their long exposure to gold futures last week, at the fastest pace