As the Federal Reserve convenes for its final policy meeting of the year, the price of gold has dipped, reflecting market uncertainty over the pace of interest rate cuts in 2025. Here’s a closer look at the factors influencing this shift.
The Market Snapshot
On Tuesday, spot gold prices dropped by 0.2%, settling at $2,647.81 per ounce, while U.S. gold futures ended 0.3% lower at $2,662. These declines coincide with a strengthening U.S. dollar and rising Treasury yields, which together weigh on the appeal of non-yielding assets like gold.
The dollar rose 0.1% during the session, increasing the cost of gold for international buyers. Meanwhile, U.S. 10-year Treasury yields reached a four-week high, reflecting investor anticipation of further economic updates during the Fed’s two-day meeting.
All Eyes on the Fed
The Federal Reserve is expected to announce a 25 basis-point interest rate cut on Wednesday, a move priced in by 95% of the market according to CME’s FedWatch tool. However, traders are eagerly awaiting the Fed's updated economic projections and "dot plot," which could shed light on policymakers' expectations for rates through 2025 and beyond.
The question at the centre of the debate: Will the Fed lean more hawkish or dovish than markets currently anticipate? Analysts like Fawad Razaqzada from Forex.com suggest the Fed may approach rate cuts cautiously in light of broader economic considerations, including geopolitical pressures.
Risks Tilted to the Downside
Gold often thrives in a low-interest-rate environment, but market dynamics leading into the Fed meeting indicate a less favourable backdrop for the metal. Zain Vawda of MarketPulse highlights that, despite the expected rate cut, stronger-than-anticipated U.S. retail sales in November and cooling inflation suggest the Fed could pause further cuts early next year.
“Heading into the Fed meeting, risks for gold are tilted to the downside,” said Vawda, noting that robust economic data could challenge the case for continued easing.
Broader Market Movements
Investors are also looking ahead to key U.S. GDP and inflation figures due later this week, which could provide additional clues about the economic trajectory and its implications for gold. Beyond gold, other precious metals also saw declines:
Silver fell 0.1%, closing at $30.51 per ounce.
Platinum dropped 0.3% to $938.48.
Palladium experienced the largest dip, down 1.2% at $935.39.
What’s Next for Gold?
The interplay between Federal Reserve policies, economic data, and broader market trends will continue to shape the outlook for gold. While rate cuts typically bolster gold’s appeal, stronger economic performance and a resilient dollar could create headwinds in the near term.
Stay tuned as The Bullion Bulletin continues to track how these developments influence gold markets and broader investment strategies.
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