Despite a supportive backdrop of geopolitical tensions and the prospect of lower U.S. interest rates, the gold market experienced a notable pullback on Tuesday. The precious metal slipped below the psychologically significant $5,000 per ounce level, prompting questions about the drivers behind the shift in investor sentiment.
Fundamental Support Remains Intact
The current correction occurs within a fundamentally positive environment for gold. The catalyst for the metal’s recent rally was subdued U.S. inflation data, with the rate falling to 2.4% in January. This has solidified market expectations that the Federal Reserve will proceed with further reductions to its benchmark rate, currently at 3.75%. Traders are now pricing in more than two rate cuts for this year, with a potential start as early as July. Lower interest rates typically enhance the appeal of non-yielding assets like gold.
Technical Selling and Thin Liquidity Drive Decline
In Tuesday’s session, gold prices marked their second consecutive day of losses. The spot price fell approximately 1% to trade near $4,920 per fine ounce. This move is largely attributed to profit-taking activity following a strong 2.5% advance recorded just last Friday. The downward pressure was exacerbated by exceptionally thin trading volumes. With major Asian financial centers closed for the Lunar New Year holiday, market liquidity was reduced, increasing susceptibility to price swings.
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Geopolitical Focus: Dual Crises in Geneva
As the market undergoes a technical adjustment, diplomatic attention is fixed on Geneva, where two critical negotiation tracks are underway:
- Iran Nuclear Talks: U.S. envoys and Iranian representatives are engaged in discussions aimed at curbing uranium enrichment in exchange for sanctions relief. The United States has underscored its stance by deploying a second aircraft carrier to the region.
- Ukraine Conflict: Delegations from Ukraine and Russia are meeting, with mediation provided by the Trump administration. However, these talks are overshadowed by substantial Russian air strikes on Ukrainian energy infrastructure, which occurred immediately prior to the meeting.
Long-Term Outlook and Upcoming Catalysts
Despite the recent setback, gold maintains a substantial year-to-date gain of nearly 68%. This sustained strength is underpinned by consistent central bank purchases and ongoing geopolitical uncertainty. In the near term, market participants will scrutinize the forthcoming release of the Federal Reserve’s meeting minutes and the latest U.S. GDP data for clues on the next directional move.
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