Gold Prices Plummet as Investors Shift Focus to Fed’s Rate Decision
After experiencing its largest surge in 20 months last week, gold prices took a dramatic tumble, ignoring the softening US dollar and instead focusing on the Federal Reserve’s impending interest-rate decision. This sudden shift in attention has sent bullion prices plummeting by almost 2% to below $2,700 an ounce.
Market Sentiment Shifts
Despite the decline in the US currency, which typically boosts gold prices, investors are now fixated on the outlook for monetary policy. A recent report showing US business activity expanding at its fastest pace since April 2022 has fueled speculation about the Fed’s next move. Swaps traders believe there is less than a 50% chance of a rate cut next month, which could spell trouble for gold prices.
Higher Borrowing Costs Weigh on Gold
As higher borrowing costs tend to negatively impact gold, which does not generate interest, investors are growing increasingly cautious. However, the precious metal is still up by over 25% this year, thanks to central bank purchases and the Fed’s pivot towards rate cuts. The ongoing Russia-Ukraine conflict has also driven up prices, with haven buying propelling a 6% rally last week.
Expert Insights
According to Jun Rong Yeap, a market strategist with IG Asia Pte, “prices continue to reflect the delicate balance between geopolitical risks and the Federal Reserve’s less dovish stance.” Yeap believes that any upside inflation surprises could influence bets towards a potential rate hold in December, potentially resisting gold price growth.
Upcoming Data to Shape Fed’s Rate Path
This week, a slew of key data releases will provide crucial insights into the Fed’s likely rate path. Minutes from the central bank’s November meeting, consumer confidence, and personal consumption expenditure data will all be closely scrutinized. The dollar’s decline on Monday, accompanied by a drop in US bond yields, followed US President-elect Donald Trump’s nomination of Scott Bessent to oversee the Treasury.
Precious Metals Take a Hit
As of 12:02 p.m. in Singapore, spot gold retreated 1.6% to $2,673.94 an ounce, with silver, platinum, and palladium also declining. The Bloomberg Dollar Spot Index fell 0.5%, adding to the downward pressure on gold prices.
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