Weekly rise in gold prices due to Fed rate-cut bets

15 Dec 2023 , 09:19 AM

Despite a little decline on Friday, gold prices managed to maintain their weekly gains as expectations of a reduction in borrowing costs by the US Federal Reserve weakened the dollar and Treasury yields, increasing demand for the safe-haven commodity.

Spot gold was down 0.1% at $2,033.29 an ounce. But this week, bullion has already increased by 1.5%. US gold futures increased by 0.1% to $2,047.60.

On Wednesday, the Fed maintained its interest rate policy and Chair Jerome Powell stated that the record tightening of monetary policy is probably coming to an end, with a debate about borrowing cost reductions coming ‘into view.’

In 2024, 75 basis points (bps) of rate decreases were projected by Fed policymakers, with 2.4% inflation at the end of the following year. According to the CME FedWatch tool, markets are currently pricing in about a 75% possibility of a rate cut in March.

The dollar and bond yields are under pressure due to lower U.S. interest rates, which also make non-yielding gold more appealing.

The dollar was on track for a weekly decline following its four-month low on Thursday, which reduced the price of gold for holders of other currencies.

Meanwhile, the benchmark yield on US 10-year bonds continued to linger close to its lowest point since July.

On Thursday, the European Central Bank reaffirmed that borrowing costs will continue at record highs despite lower inflation projections, countering wagers on impending interest rate reduction.

According to data, November’s U.S. retail sales surprisingly increased. In the week ending December 9, initial claims for state unemployment benefits decreased by 19,000 to a seasonally adjusted 202,000, according to a separate data.

Palladium dropped 0.4% to $1,098.13, platinum dropped 0.2% to $956.21, and spot silver sank 0.3% to $24.07 per ounce.

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