Expected Fed rate cuts keep gold above $2,000, Investors pay attention to US inflation

20 Dec 2023 , 09:30 AM

With investors anticipating U.S. inflation data later this week, gold prices remained stable above the crucial $2,000 mark on Wednesday, helped by expectations of interest rate reduction from the Federal Reserve in the upcoming year.

Spot gold barely changed at $2,038.49 per ounce. At $2,051.60, U.S. gold futures remained flat.

The Federal Reserve signalled last week that the tightening process was coming to an end and that rate cuts are likely in 2024.

Given the health of the American economy, Atlanta Fed President Raphael Bostic stated on Tuesday that there isn’t a ‘urgency’ for the Fed to lower interest rates right now.

According to the CME FedWatch tool, markets are pricing in a roughly 75% possibility of a rate drop by the Fed in March.

Because lower interest rates weigh on the dollar and reduce the opportunity cost of owning nonyielding bullion, gold becomes more affordable for investors holding foreign currencies.

The benchmark U.S. 10-year yield lingered close to its lowest level since July, while the dollar was unchanged at 102.180, close to its lowest level in four months recorded last week.

Investor attention is now turning to the Fed’s favoured gauge of underlying inflation, the November core personal consumption expenditure (PCE) index data, which is coming on Friday and may provide additional clues about the outlook for U.S. interest rates.

According to Chicago Fed Bank President Austan Goolsbee, any move by the Fed to lower interest rates in 2019 will be based mostly on how well the economy is doing at controlling inflation.

According to Swiss customs data released on Tuesday, a decline in shipments to India contributed to a decline in gold exports from Switzerland in November.

Spot silver increased by 0.2% to $24.06 an ounce, while palladium remained stable at $1,224.60 and platinum decreased by 0.3% to $951.46.

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