Gold Prices Plunge on Fed Rate-Cut Uncertainty
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Gold prices are experiencing their most significant weekly decline in over three years, with prices down more than 4% this week, reports Reuters. This sharp drop is attributed to increased expectations that the US Federal Reserve will adopt a less aggressive approach to interest rate cuts, bolstering the dollar and diminishing gold's appeal to investors.
Spot gold fell 0.1% to $2,565.49 per ounce by late afternoon ET on Friday, hitting its lowest point since September 12th on Thursday. US gold futures also saw a slight dip, closing 0.1% lower at $2,570.10.
The dollar, poised for its largest weekly gain in over a month, is making gold more expensive for holders of other currencies. This is further exacerbated by the rise in US Treasury yields, following the release of data showing stronger-than-expected retail sales in October.
"All the uncertainties, specifically the short-term uncertainties have been removed from the mix. Now gold is just going back to basic fundamentals," said Alex Ebkarian, chief operating officer at Allegiance Gold, to Reuters.
Economists believe that President-elect Donald Trump's plans to implement tariffs will fuel inflation, potentially slowing the Fed's rate-cutting cycle. Higher interest rates reduce the attractiveness of gold, a non-yielding asset.
Fed Chair Jerome Powell's statement on Thursday, emphasizing that the central bank doesn't need to rush into rate cuts, has further dampened expectations for aggressive monetary easing.
Markets now assign a 62% probability to a 25-basis-point rate cut in December, down from 83% the previous day and 85.5% a month ago, according to the CME Fedwatch tool.
"So far gold has been negatively impacted by the election of Trump but this can change if there is some more uncertainty which could come back in the medium term," said Kinesis Money market analyst Carlo Alberto De Casa.
Spot silver, platinum, and palladium also experienced declines this week, all on track for weekly losses. Traders are now awaiting comments from several Fed officials expected to speak later in the day.