Gold Retreats but on Track for Third Straight Monthly Gain

On Tuesday, Gold prices reversed early gains and traded lower near $1904 per ounce as investors remain cautious ahead of a series of central banks rate decisions this week.

Sellers held the grip over XAUUSD near the short-term key support at $1920, pushing the precious metal to give up its Asian session gains.

Spot gold is trading 0.98% lower at $1904 per ounce and gold futures were lower 0.4% at $1915 as Monday saw open interest in gold futures markets declining for the third session in a row.

However, the yellow metal is set to gain for the third straight month as global recession fears fuels the demand for the safe haven asset, holding monthly gains of nearly 5%.

Monetary Policy in Focus

The Federal Reserve is set to scale back its rate hike again to 25 bps following a 50 bps rate hike in December and four consecutive 75-basis point hikes in 2022. The recent data revealed that the core Personal Consumption Expenditure (PCE) inflation, Fed’s preferred inflation gauge, dipped to its lowest level in over a year, which bolsters the argument for a more modest hike. Traders will be watching closely for further clues on the interest rate path through this year.

On Tuesday, the US dollar index (DXY) bounced 0.29% above 102 as investors look toward the Federal Reserve’s upcoming interest rate decision this week. However, the USD remains on course for its fourth consecutive monthly decline due to mounting concern about US recession and speculation that the central bank will slow down the course of policy tightening.

The European Central Bank and Bank of England will hold their policy meetings on Thursday and both are widely anticipated to continue policy tightening as well by delivering more rate hikes.

Meanwhile, following the temporarily enacting pandemic-related closing, China’s economy returned to its growth trajectory in January, according to official data, quicker than anticipated and boosted confidence on the precious metal’s outlook given that China is the top consumer of gold.

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Gold Demand Soars to a New Record High

Annual gold demand, excluding OTC, surged by 18% YoY to a new decade high of 4,741t, the highest since 2011, according to the latest Gold Demand Trends report released by the World Gold Council today.

Central bank-buying and resilient retail investment buoyed demand for the precious metal.

Central bank demand more than doubled to 1,136t in 2022, a 55-year record high. Purchases in the fourth quarter of 2022 alone amounted to 417t, pushing the total for the second half of the year to over 800t.

Investment demand, excluding OTC, was 10% higher in 2022 compared to the previous year, mainly due to diminishing outflows from ETFs coupled with sustained appeal of gold bars and coins in multiple countries which helped to offset weak demand in China.

European gold bar and coin investment surged to more than 300t in 2022, driven mainly by strong demand from Germany. In the Middle East, demand climbed 42% year-on-year.

Near-term Gold Overview

XAUUSD inched lower towards the rising support line of the ascending channel on the daily frame. The move below the support $1,915 exposes Gold to further decline to test the next support level at $1,900. Breaching this support would open door for more losses towards $1875 followed by $1845 (200-day MA).

XAUUSD daily chart

Gold Retreats but on Track for Third Straight Monthly Gain

On the upside, prices should benefit from dovish Fed statement on ending the tightening cycle, paving way for recovery and retest the resistance level at $1950. Daily closure above this level revives the bullish outlook for the yellow metal.

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