Market Volatility Ahead: Gold Prices Slip Amid Central Bank Decisions
As traders prepare for a flurry of interest-rate announcements from major central banks, including the US Federal Reserve, gold prices have taken a hit, mirroring the decline in commodities and equity markets.
Economic Data Mixed Bag
The precious metal had seen a modest gain in the previous session, driven by mixed US data. While activity at US service providers expanded at the fastest pace since October 2021, a measure of New York state factory activity retreated. This conflicting data has left investors uncertain about the future of interest rates.
Fed Decision Looms Large
The Federal Reserve’s final policy decision of the year, set to be announced on Wednesday, will be closely watched by traders. Interest-rate swaps are almost fully pricing in a quarter-point cut in the US, and policymakers’ language will be scrutinized for clues on the 2025 outlook. A rate cut would typically boost gold prices, as the metal doesn’t pay interest.
Gold’s Stellar Performance
Despite the current slip, gold has had a remarkable year, rising by more than 28% and putting it on track for its biggest annual gain since 2010. The metal’s strength has been supported by easing in the US, safe-haven demand, and sustained buying by the world’s central banks. In fact, Indian gold imports surged to a record in November after the government cut customs levies.
Goldilocks Scenario
According to Max Layton, global head of commodities research at Citigroup Inc., gold is in a unique position. Whether inflation remains higher or lower than expected, gold will benefit from both a downturn in the US economy and lower rates. This “Goldilocks situation” has gold poised for continued growth.
Current Market Snapshot
As of 3:59 p.m. in New York, spot gold was down 0.3% at $2,644.03 an ounce. The Bloomberg Dollar Spot Index rose 0.1%, while silver and palladium were lower.
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