Gold gains as expectations of a Fed rate drop hurt the currency and bond yields

14 Dec 2023 , 09:25 AM

After the U.S. Federal Reserve suggested an end to its tightening cycle and lower borrowing costs in 2024, sending the dollar and Treasury yields plunging, gold prices extended gains to a one-week high on Thursday.

Spot gold was up 0.2% at $2,031.28 an ounce, following a 2.4% increase on Wednesday. Futures for US gold increased 2.4% to $2,045.50.

As was generally expected, the Fed held interest rates constant for the third consecutive meeting. Nearly all Fed officials—seventeen out of nineteen—project that the policy rate will drop from its current level by the end of 2024.

Fed Chair Jerome Powell stated that rate increases by the US central bank were probably over, although he left open the possibility of more action if necessary.

In addition to the dollar’s decline against its peers to a two-week low, the U.S. benchmark 10-year yield also fell to its lowest level since August, which reduced the price of gold for holders of other currencies.

According to the CME FedWatch tool, markets are currently pricing in about a 73% possibility of a rate drop from the Fed in March.

Non-interest bearing bullion is typically supported by lower interest rates.

Investors are currently awaiting announcements from other central banks, such as the Bank of England and the European Central Bank later in the day.

Palladium increased by 0.6% to $998.64 and platinum by 0.2% to $936.15, respectively, while spot silver increased by 0.4% to $23.83 per ounce.

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