Gold prices inched higher on Monday, as investors focused on the Federal Reserve’s upcoming meeting and the potential for an interest rate cut. Spot gold increased by 0.1% to $2,652.07 per ounce by 01:55 GMT, while US gold futures slipped 0.2% to $2,670.90. The market’s attention is now squarely on the Fed’s actions and language regarding future rate cuts, with implications for the precious metal’s near-term direction.
Markets are almost fully priced for a 25-basis-point rate cut by the Federal Reserve during its meeting on December 17-18. According to CME’s FedWatch tool, there is a 93.4% chance that the Fed will implement this rate reduction, reflecting the ongoing concerns over inflation and the global economic outlook. However, market participants are more uncertain about the Fed’s trajectory in 2025. While the December rate cut seems nearly certain, only an 18% chance has been priced in for another cut in January, indicating that the central bank may adopt a more cautious stance in the upcoming months.
Yeap Jun Rong, an IG market strategist, noted that the focus now shifts to the Fed’s language on future policy moves. “A 25 basis point rate cut this week has been fully priced by markets, so the focus will be on whether this will be a ‘hawkish cut,’ where US policymakers may set the stage for a potential rate hold into January, given above-target inflation, some economic resilience, and uncertainties over Trump’s policies ahead,” he explained.
Gold typically benefits from a lower interest rate environment, as it reduces the opportunity cost of holding non-yielding bullion. Additionally, gold is seen as a safe-haven asset during times of economic uncertainty or geopolitical instability, making it an attractive investment for risk-averse investors.
In addition to the anticipated rate cut, gold has also found support from the escalating geopolitical tensions in the Middle East. Recent airstrikes in Gaza, which have resulted in the deaths of at least 53 Palestinians, have heightened concerns over regional stability. The Israeli military confirmed that its air and ground forces in the northern part of Gaza had killed dozens of militants and captured others. These developments add to the broader atmosphere of uncertainty, further supporting gold’s safe-haven appeal.
Historically, geopolitical turmoil, particularly in volatile regions like the Middle East, tends to drive up demand for gold as investors seek stability. With the US and other global powers involved in ongoing diplomatic and military efforts in the region, the likelihood of continued conflict remains high, providing an additional catalyst for higher gold prices in the near term.
Despite the upward movement in gold, the metal faces significant resistance at the $2,720 level. Over the past month, gold prices have pulled back from this key resistance level on at least two occasions, indicating that buyers need to push past this threshold to open the door for further gains. “The $2,720 level is a key resistance point for buyers to overcome if they are to pave the way for more upside,” Yeap said, highlighting the challenges that lie ahead for the yellow metal.
If gold can break through this resistance level, there could be potential for it to climb higher in the short term. However, any failure to surpass this level could result in further consolidation or downward pressure, especially if the Fed signals a more hawkish stance in its policy outlook.
While gold prices have seen a slight uptick, other precious metals have had a mixed performance. Spot silver was unchanged at $30.54 per ounce, holding steady amid the uncertainty. Platinum, on the other hand, saw a decline of 0.3%, trading at $922.05 per ounce. Meanwhile, palladium gained 0.4%, reaching $956.58 per ounce. The divergence in performance among these metals reflects varying investor sentiment and the broader economic factors that influence their prices.
Read more:
