Gold gains momentum amid doubts over 2025 Fed rate cut pace

Gold prices have steadied at $2,620 an ounce, reflecting investor caution amidst mixed signals from the US Federal Reserve.

After closing 0.4% lower earlier this week, bullion has rebounded slightly in thin holiday trading.

Market participants are evaluating the impact of the latest US consumer confidence data, which fell unexpectedly in December, fuelling concerns about the economic outlook.

The Federal Reserve’s recent policy stance—signalling fewer interest-rate cuts in 2025—has left traders reassessing their expectations for the precious metal’s performance in the months ahead.

Will interest-rate cuts affect gold’s 2024 rally?

Gold prices have surged by over 25% this year, driven by US monetary easing, heightened safe-haven demand, and increased purchases by central banks.

Despite its remarkable performance, the rally has recently slowed due to a strengthening US dollar.

The Bloomberg Dollar Spot Index, which climbed 0.3% in the previous session, remains stable, but its gains have made commodities priced in dollars more expensive for international buyers.

The Federal Reserve’s decision to limit the pace of rate cuts has also weighed on bullion.

Lower borrowing costs are typically beneficial for gold, which offers no yield.

However, Federal Reserve Chair Jerome Powell has reiterated the need for inflation to ease further before the central bank can adopt a more aggressive monetary easing approach.

The outlook for gold is further complicated by global economic headwinds, including persistently high inflation, uneven post-pandemic recoveries, and geopolitical tensions.

These factors continue to shape investor sentiment and may drive fluctuations in demand for safe-haven assets like gold.

Gold, silver, and palladium rise, platinum dips

Spot gold rose 0.2% to $2,618.93 an ounce in early London trading, reflecting resilience amid cautious market sentiment.

Other precious metals, including silver and palladium, also saw gains, while platinum posted a slight decline.

Analysts have noted that thin holiday trading could amplify price volatility in the short term, creating opportunities and risks for investors.

The continued strength of the US dollar remains a critical factor.

A stronger greenback typically exerts downward pressure on gold prices, as it raises the cost for buyers using other currencies.

Meanwhile, central banks worldwide have maintained robust gold purchases, a trend expected to continue into the new year.

Geopolitical uncertainties and the evolving economic policies of the incoming Trump administration are expected to sustain demand for safe-haven assets like gold in 2024 and beyond.

Concerns over fiscal policy changes, trade relations, and broader market stability have heightened the appeal of bullion among institutional and retail investors.

Gold’s trajectory will likely hinge on central bank policies, the strength of the dollar, and broader economic conditions in the new year.

Investors will watch closely for any signals of policy shifts or emerging risks that could further influence the precious metals market.

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