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Gold prices have stalled near $5,200 as the Federal Reserve's hawkish stance on interest rates dampens demand for gold ETFs, according to Morgan Stanley. The bank notes that higher borrowing costs reduce gold's appeal as an inflation hedge, with ETF outflows contributing to the price consolidation. Recent data shows gold ETF holdings have declined by 5% year-to-date, reflecting reduced investor appetite amid expectations of prolonged high rates.
This development is significant for traders as gold's performance is inversely correlated with real interest rates. A sustained Fed pivot toward rate cuts could reignite buying momentum, while further tightening might cap gains. The USD index's strength against the euro and yen also impacts gold's dollar-denominated price, creating a complex interplay of macroeconomic factors.
Market participants should monitor the Fed's upcoming policy decisions and inflation data for clues on rate trajectory. Technical indicators suggest $5,000 as a critical support level, with a breakdown potentially triggering a test of $4,800. Gulf investors holding physical gold or gold-linked ETFs may need to reassess their exposure in light of shifting monetary policy expectations.
