Spot gold settled at $2,013.59 an ounce after hitting its highest since May 16 earlier in the session. US gold futures for December delivery rose 0.1 percent to $2,013.90 an ounce.
Gold continues to get support from broadly weaker dollar and falling Treasury yields as expectations grow for Fed rate cuts in 2024
“The feeling of caution ahead of another busy week for global financial markets also provides support to the precious metal. Given how hard it is to beat the $2,000 level, gold could end up falling without a strong underlying catalyst. The dollar index touched its lowest level since late August, making gold less expensive for holders of other currencies. The yield on the 10-year Treasury note is hovering near a two-month low of 4.3630%.
Traders widely expect the US central bank to maintain interest rates in December, and estimate a chance of around 50-50 percent to cut rates in May next year, CME’s FedWatch shows.
Lower interest rates reduce the opportunity cost of holding non-yielding bullion. Investors are also looking to Thursday’s US PCE data, the Fed’s preferred inflation measure, for further signals on interest rate expectations. Also in the spotlight are revised third-quarter US GDP figures, due on Wednesday. Saglimbini said: “It’s normal to see stocks consolidate in the last few days of a really strong month. … For the rest of the year, the momentum is tilted to the upside. Treasury yields fall: Gold’s main enemies in financial markets, yields on US Treasuries, which provide a stable and predictable return that gold cannot provide, are now less worrisome.
The impact of the decline in the dollar and the statements of the Federal Reserve on the markets and gold
Broader Dollar Weakness: A weaker dollar provided significant support to gold. The US Dollar Index (DXY), also tracked by the Invesco DB USD bull fund for the ETF fell below 103 levels on Tuesday, reaching the lows last seen in mid-August.
Shifts in the Fed’s tone: One of the Fed’s most enthusiastic members, Gov. Christopher J. Waller, took a surprisingly pessimistic stance during his speech to the US Enterprise Institute on Tuesday: “Inflation rates are moving pretty much as I thought,” Waller declared.
He expressed growing confidence that the current policy measures are well positioned to slow the economy and bring inflation back to the 2% target. Notably, he was also “reasonably confident” that this could be achieved without a significant rise in the unemployment rate, which currently stands at 3.9%. Waller noted that if inflation continues to fall over several months, a rate cut could become a reality.
Bets on Fed rate cuts rise: After Waller’s remarks on Tuesday, the market responded by increasing bets on interest rate cuts in 2024. CME Group’s Fedwatch tool, which measures the underlying market probabilities of future interest rates, now points to a roughly 65% chance of cutting federal interest rates. Rate cuts as early as May 2024. Traders also estimate at least four Interest rate cuts by December 2024, with a probability of 69%.
Treasury yields fall: Gold’s main enemies in financial markets, yields on US Treasuries, which provide a stable and predictable return that gold cannot provide, are now less worrisome.
Gold prices rise on lower Treasury yields and improved investment demand
Policy-sensitive two-year Treasury yields fell 22 basis points to 4.74% over the past two sessions, reaching levels last observed in early August. The yield on 10-year Treasury bonds fell to 4.35%, the lowest level since mid-September.
Gold prices rose to above $2,040 an ounce (.oz) on Tuesday, a level not seen since the first days of May 2023.
The bullion, closely watched by the SPDR Gold Trust GLD, is now within striking distance of all-time highs of $2081, which briefly arrived during the volatile session on May 4, 2023. It is even approaching the highest closing price ever recorded, reaching $2,063 in August 2020.
Improving investment demand: Investor demand, which was a passive factor in 2022, is now starting to tilt in favor of gold prices. SPDR Gold Trust, the largest exchange-traded fund (ETF) tracking gold, saw net inflows of $1.5 billion during November, representing the strongest monthly inflow since March 2022. China’s benchmark prices for spot gold interbank transactions rose on Tuesday, according to the Foreign Exchange Trading System Chinese. The benchmark price of pure gold of 99.95 percent or more was 468.96 yuan (about US$65.93) per gram, up 4.3 yuan from the previous trading day, while the price of pure gold rose 99.99 percent or more 4.81 yuan to 4.81 yuan. 469.83 yuan.
Spot transaction rates in the interbank price inquiry market are allowed to rise or fall within 15 percent of standard rates per trading day. The Interbank Gold Price Inquiry service was introduced in 2012 to enhance market liquidity and enrich trading models.
Markets and Dollar Movements After Fed Signals on Rate Cut
The MSCI global stock index rose yesterday while the dollar fell as a Fed official indicated that the US central bank has finished raising interest rates and could even consider cutting interest rates if inflation continues to fall.
The US dollar index hit a three-and-a-half-month low and is heading for its biggest monthly decline in a year, as investors see growth in the world’s largest economy starting to slow as the market begins to price. Interest rate cuts in the first half of the year.
Fed Governor Christopher Waller has boosted these bets by pointing to the possibility of a Fed rate cut in the coming months if inflation continues to fall. Waller also said he was “increasingly confident” that setting the current interest rate would be enough to bring inflation down to the Fed’s 2 percent target.
Michelle Bowman, another Fed governor, said the central bank would likely need to raise borrowing costs further in order to bring inflation back to its target.
Traders appear to be taking their signals from Waller as bets on the first rate cut in March increase with the prospect of a 25 basis point cut of almost 33 percent, up from 21.5 percent on Monday, according to the Fed. Latest data from the CME Group’s Fedwatch tool.The majority expected a cut of at least one degree in May, according to CME data.
The market saw Waller’s comments as the first indication that the Fed “recognizes that it may be able to cut interest rates next year” while other officials “deflected some euphoria,” according to Anthony Saglimbini, chief market strategist at Ameriprise.
