Gold prices remained robust post-record high in Asian trade on Monday as the market expects the Federal Reserve’s (Fed) rate cut early next year.
Spot gold increased by 0.64% to $2,085.40, while gold futures for February delivery rose by 0.73% to $2,105.05 per ounce. The two instruments had climbed 2.00% earlier in the session.
However, spot gold price later eased to trade at 0.37% to $2,064.53, and gold futures declined by 0.29% to $2,083.65.
The yellow metal saw significant gains last week, marking its two consecutive months of rise throughout November.
Despite central bank officials’ wariness, gold was able to post gains on the prospect of a March 2024 interest rate cut.
The bullion also surged amid escalating geopolitical tensions between Yemeni Houthis and the US.
The yellow metal has benefited from falling inflation, a weak labor market report, and the Fed’s potentially less hawkish stance.
Additionally, near-term demand for gold strengthened following an attack on a US Navy warship and other commercial ships in the Red Sea, further raising concerns about an intensification of the Israel-Hamas war.
Fed Chair Jerome Powell’s speech on Friday reiterated his stance that interest rates will stay higher for longer.
That said, Powell recognized the progress in easing inflation and the possibility of a “soft landing” for the US economy, supporting expectations of no rate hike in December and potential cuts by March 2024.
Fed March Rate Cut Expected, More Economic Cues in Focus
Analysts forecast unchanged interest rates until the year-end and anticipate an easing in March 2024, with economic signals in sight this week.
Fed Fund futures presented a 97% odd of unchanged interest rates in December, with a 60% probability of cutting rates to 5.00%-5.25%. That is compared with traders estimating a 21% likelihood of a March reduction last week.
Expectations of lowered interest rates are positive for gold as higher rates fuel the opportunity cost of investing in the metal. Bullion prices have suffered in the past year due to the Fed’s aggressive interest rate hikes, impacting market sentiment.
Markets now await a series of economic cues, including the US’s crucial nonfarm payrolls for November to be released later this week and upcoming inflation data for the rest of 2023.
The Fed is set to hold its monetary policy meeting in the middle of December.
