Gold Futures Take a Dip Despite Rate Cut Anticipation
Gold futures experienced a decline of over 1% on Friday, December 13th, marking a retreat after reaching a five-week high the previous day. This downturn was largely attributed to profit-taking and a strengthening US dollar. Though, the overall week ended positively for gold, fueled by expectations of an upcoming Federal Reserve interest rate cut.
The February COMEX gold contract closed at $2,675.80 per ounce, a decrease of $33.60 (1.24%). This drop coincided with the US dollar index reaching a two-week high, rising 0.04% to 107.003. A stronger dollar typically diminishes gold’s appeal, making it more expensive for investors holding other currencies.
The market also saw profit-taking pressure following Thursday’s surge, which saw gold prices climb more than 0.8% for the week and reach their highest point sence November 6th. Daniel Pavilonis, senior market strategist at RJO Futures, offered his perspective: “Gold prices have increased significantly this year. And we’re entering the end of the year. This may see a correction in the last few weeks. But I think it will only be temporary. and beleive that gold prices are still likely to increase further.”
Despite the recent dip, several factors have supported gold prices throughout the year, including accommodative monetary policy, robust central bank gold purchases, and its status as a safe-haven asset. These factors have propelled gold to record highs on multiple occasions in 2024.
Market sentiment leans heavily towards a 0.25% interest rate cut by the Federal Reserve at its December 17-18 meeting, with a 97% probability predicted by investors.Attention will also be focused on comments from Fed Chairman Jerome Powell regarding US monetary policy in 2025, particularly in light of President-elect Donald Trump’s proposed tax plans, which some economists believe could further fuel inflation.
The relationship between interest rates and gold prices is complex. Central banks typically maintain high interest rates to combat inflation, increasing the opportunity cost of holding non-interest-bearing assets like gold.Carsten Menke, an analyst at Julius Baer, provided a contrasting viewpoint: “In general We expect that the US economy will be stronger next year This should make it less likely for a rate cut. It will be less positive for gold.”
Gold Futures dip Triggers Questions on Rate Cut Impact
Senior Editor, World-Today-News.com:** Welcome back to World-Today-News.com. Today we’re diving into the recent dip in gold futures amidst expectations of a Federal Reserve interest rate cut. Joining me is Daniel Pavilonis, Senior Market Strategist at RJO Futures, to shed some light on this complex situation. Daniel, thanks for being here.
Daniel Pavilonis: My pleasure. Thanks for having me.
Senior Editor: Let’s jump right in. Gold futures dropped over 1% on Friday, December 13th, despite the anticipation of a rate cut. Many analysts were expecting a surge. What factors contributed to this dip?
Daniel Pavilonis: Yes, it was a bit of a surprise. The decline was largely attributed to profit-taking after gold reached a five-week high the previous day. We saw investors securing profits, especially as the US dollar strengthened. Remember, a stronger dollar generally makes gold less attractive for buyers using other currencies. [[3]]
Senior Editor: The article mentions strong expectation for a rate cut. How have these expectations influenced gold prices?
Daniel Pavilonis: Expectations of a rate cut have been a major driver behind gold’s positive performance this year. Lower interest rates typically make non-interest-bearing assets like gold more appealing. [[3]] However, it’s important to consider that the market has already factored in this potential cut. Ther might potentially be less room for significant gains solely based on the rate cut itself.
Senior Editor: We’ve seen gold prices reach record highs several times in 2024. What other factors beyond the anticipated rate cut are contributing to this?
Daniel Pavilonis: That’s right. There are a few key factors at play. We’ve seen accommodative monetary policy globally, robust central bank gold purchases, reflecting a desire for stability, and gold’s status as a safe-haven asset during times of economic uncertainty.
Senior Editor: What are your predictions for gold prices moving forward? Will we see a sustained increase?
Daniel Pavilonis: I believe we may see a temporary correction in the last few weeks of the year.But I’m still bullish on gold. The factors I mentioned, combined wiht the potential for further monetary easing, suggest that gold prices are likely to continue their upward trajectory in the long term.
Senior Editor: Thank you for sharing your insights, Daniel. This certainly gives our readers a better understanding of the complex dynamics impacting gold prices.
