XAU/USD LANGUISHES NEAR YTD LOW AMID FED RATE HIKE JITTERS

Bets for more aggressive Federal Reserve weigh on Gold price

Growing acceptance that the Federal Reserve (Fed) will stick to its hawkish stance and that rates are going to remain higher for longer continue to drive flows away from the non-yielding Gold price. In fact, the markets are now pricing in at least a 25 bps lift-off at each of the next two Federal Open Market Committee (FOMC) meetings in March and May. The bets were lifted by the US Consumer Price Index (CPI) data on Tuesday, which showed that inflation remained stubbornly high in January.

Higher inflation and hawkish Fed officials reinforce expectations

Adding to this, the US Producer Price Index (PPI) too surprised to the upside on Thursday and rose by 0.7% in January. On an annualized basis, the PPI decelerated from 6.5% in December to 6.0%, though was above market expectations. Moreover, the incoming positive US economic data pointed to an economy that remains resilient despite rising borrowing costs. Furthermore, two Fed officials raised the prospect of a 50 bps hike in March, which, in turn, continues to exert pressure on Gold price.

St. Louis Fed President James Bullard said that the central bank could return to raising interest rates at a sharper pace. Separately, Cleveland Fed President Loretta Mester said that interest rates will likely rise above 5% and that the central bank should have hiked rates by more than 25 bps at the February meeting. This, in turn, pushes the yield on the benchmark 10-year US government bond to its highest level since late December and provides a strong boost to the US Dollar (USD).

Stronger US Dollar exerts additional pressure on Gold price

The USD Index, which tracks the Greenback against a basket of currencies, climbs to a fresh six-week high and is seen as another factor weighing on the US Dollar-denominated Gold price. That said, the risk-off mood - amid worries about economic headwinds stemming from rapidly rising borrowing costs - lends some support to the safe-haven precious metal and helps limit losses. Nevertheless, the XAU/USD remains on track to register heavy losses for the second week in the previous three.