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Investing.com — Gold prices steadied on Tuesday after plunging last week as the dollar's rally took a breather, with the market now focused on the yellow metal, which could test key support levels. ing.
Gold's near-term outlook continued to be undermined by persistent concerns about a prolonged period of high US interest rates, particularly as markets began pricing in the possibility that the Federal Reserve would keep rates on hold until June.
Strong U.S. economic data and hawkish comments from Federal Reserve Chairman Jerome Powell are the main drivers behind this idea, with both factors contributing to the last two sharp declines in gold prices.
While the gold price rose to a three-month high, U.S. Treasury yields also rose sharply due to the rise in long-term interest rates, putting further pressure on gold prices.
The April expiration was flat at $2,042.40 an ounce by 12:23 a.m. ET (5:23 p.m. Japan time), but steady at $2,026.33 an ounce.
$2,000 support in focus as interest rate concerns rise
Analysts said spot gold prices are likely to test the $2,000 an ounce level in the coming days, especially if there is little change in the U.S. interest rate outlook.
Traders are pricing in an 83% chance that the Fed will keep interest rates on hold in March, showing a steady increase in the likelihood of a similar move in May.
Gold briefly tested the $2,000 an ounce level in early January, but was hesitant to break below support. A move below $2,000 could lead to further declines in bullion prices, especially if U.S. interest rates remain high for an extended period of time.
Next week is expected to be a key turning point in prices, and multiple Fed officials are also scheduled to speak this week.
If U.S. interest rates remain high for an extended period of time, the opportunity cost of investing in the yellow metal increases, making gold less attractive.
Copper gains as traders weigh China issue
Among industrial metals, copper prices rose on Tuesday after posting four consecutive sessions of losses as markets digested weaker economic signals from China.
Sterling, which expires in March, rose 0.5% to $3.7920 per pound, after falling by more than $1 in the past four sessions.
Prices were mainly affected by a series of weak purchasing managers' indicators in China, the world's largest copper importer. Statistics showed that business activity in January, especially in major regions, had barely recovered.
This week we're focusing on January and it's scheduled for Thursday. The reading will take place the day before the week-long Lunar New Year holiday.
