Gold Plunges on Fed's Hawkish Signal

19 Dec 2024 , 11:12 AM

Following the U.S. Federal Reserve’s announcement that it would limit the speed of its monetary policy easing cycle next year, which raised the dollar and Treasury yields, gold prices lingered Thursday close to a one-month low.

After falling more than 2% overnight to reach its lowest level since November 18, spot gold was barely altered at $2,588.80 per ounce. At $2,602.70, U.S. gold futures fell 1.9%.

According to its summary of economic predictions (SEP), the Fed will reduce rates by a half percentage point by the end of 2025, after lowering them by 25 basis points to the 4.25%–4.50% level.

Fed Chair Jerome Powell stated that since inflation has surpassed year-end forecasts, Fed members want to see further progress in lowering inflation as they contemplate the course of future rate decreases.

Following the Fed’s decision to cut interest rates, the dollar index reached its highest level in two years, making gold more costly for holders of foreign currencies as U.S. Treasury yields spiked higher.

At the Fed’s policy meeting on January 28–29, markets currently anticipate that the Fed will maintain its benchmark overnight rate. The allure of holding the non-yielding asset is diminished by higher rates.

For additional hints on monetary policy, traders now anticipated the release of the Core Personal Consumption Expenditure and important U.S. GDP data later this week.

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