Gold price rose today to its highest in nearly three weeks, as growing bets on interest rate cuts by the Federal Reserve early next year pushed the dollar and bond yields lower ahead of long-awaited U.S. inflation data.
Spot gold rose 0.2 percent to $2,049.49 an ounce after hitting its highest since Dec. 4 earlier in the session. Gold is up 1.6% since the start of the week. U.S. gold futures rose 0.5 percent to $2,060.80 an ounce. Traders now expect an 83% chance of cutting the Fed interest rate by March, according to CME FedWatch. Lower interest rates reduce the opportunity cost of holding non-yielding bullion.
Real yields are trending lower due to growing expectations of a first rate cut from the Federal Reserve in March, which is a positive stimulus for gold prices at the moment. The dollar index held near a five-month low, making gold more attractive to holders of other currencies, while benchmark 10-year US bond yields hovered near their lowest level since July.
Traders now expect an 83% chance of cutting the Fed interest rate by March, according to CME FedWatch. Lower interest rates reduce the opportunity cost of holding non-yielding bullion.
Fed officials oppose the idea of quick rate cuts next year, but the comments did little to change investor sentiment. All eyes are now on November’s Core Personal Consumption Expenditure Index report, the Fed’s preferred measure of core inflation for more clarity on the US interest rate outlook. Market participants expect the index to rise 3.3% year-on-year, compared to 3.5% in October.
Gold price rises today on the weaker dollar and a declining US GDP report
Gold price today extends gains during the early Asian session on Friday. The weakness of the US dollar (USD) and the dovish US GDP growth figure provide some support for the yellow metal. Gold is currently trading near $2,055, up 0.53% on the day.
Meanwhile, the US Dollar Index (DXY), a measure of the value of the dollar against the basket of weighted currencies used by US trading partners, fell to its lowest level since August, near 101.80. Treasury yields rose modestly, with a 10-year yield of 3.89%.
Data released on Thursday showed that US GDP for the third quarter came in weaker than expected, expanding by 4.9%, according to a report by the US Bureau of Economic Analysis (BEA). Moreover, initial claims for unemployment benefits rose by 2,000 to a seasonally adjusted level of 205,000 for the week ending December 16, worse than market expectations of 215,000.
Declining US economic data and moderate inflation suggest that the Fed’s monetary policies are constrained enough to sustainably return inflation to the target. Fed members have predicted at least three rate cuts in 2024, and markets estimate the possibility of a rate cut of almost 79% in March, according to CME FedWatch. However, a US decline could boost gold’s appeal.
Looking ahead, gold traders will be keeping a close eye on the November Core PCE US Personal Consumption Expenditure Price Index (Core PCE) on Friday. The Fed’s preferred inflation gauge is expected to show an increase of 0.2%m/m and 3.3%y/y. Furthermore, the University of Michigan Consumer Confidence Survey, durable goods orders report and new home sales data from the US agenda will also be released.
