Gold Poised for Third Weekly Gain as Data Backs Expectations of Slower Fed Rate Hikes

1 Dec 2023 , 12:07 PM

Gold prices are on track for a third consecutive weekly gain, as recent economic data has reinforced expectations that the Federal Reserve will slow down its pace of interest rate hikes. A slower pace of rate hikes is seen as positive for gold, as it reduces the opportunity cost of holding the non-yielding asset.

The latest data showed that U.S. personal consumption expenditures (PCE), the Fed’s preferred measure of inflation, moderated in October. The PCE price index rose 5.1% year-over-year in October, down from 5.3% in September.

This moderation in inflation, coupled with signs of a slowing economy, has led investors to believe that the Fed may not need to be as aggressive in raising interest rates. As a result, expectations for the Fed’s terminal rate, the highest rate it is expected to reach, have eased.

This is positive for gold, as it makes the metal more attractive to investors compared to other asset classes that offer a yield. When interest rates are rising, investors tend to favor yield-bearing assets like bonds, while gold is typically seen as a safe haven asset.

Gold prices have rallied in recent weeks, as investors have become more confident that the Fed will slow down its pace of rate hikes. The metal is currently trading at around $1,730 an ounce, up from around $1,620 an ounce in early October.

Analysts believe that gold prices could continue to rise in the near term, as investors continue to weigh the prospect of slower Fed rate hikes. However, they also caution that gold prices could be volatile, as investors will be closely watching for any changes in the Fed’s outlook.