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Gold subdued as uptick in dollar offsets declining yields

Gold prices

Spot gold was flat at $2,025.70 per ounce, U.S. gold futures were also steady at $2,040.40

Gold prices were subdued on Tuesday as a slight rise in the dollar countered support from declining Treasury yields, while investors await U.S. economic data due this week that could further reveal the Federal Reserve’s interest rate path.

Spot gold was flat at $2,025.70 per ounce. U.S. gold futures were also steady at $2,040.40.

The market got a little bit too excited after the FOMC (Federal Open Market Committee) meeting, betting on big rate cuts next year, but several members are not yet ready and still regard that the risk of inflation has not yet been overcome completely, said Quantitative Commodity Research analyst Peter Fertig.

Fed Chair Jerome Powell said last week that the central bank’s monetary policy tightening is likely over, with a discussion of cuts in borrowing costs coming “into view.”

While some Fed officials have pushed back against soaring market expectations of rate cuts, the remarks have done little to change investor sentiment.

Markets are still pricing in around a 70 per cent chance of a rate cut in March, shows the CME FedWatch tool.

Supporting gold, on the other hand, is that the yields on government bonds are coming down, which is reducing the opportunity costs of holding gold, Fertig said.

Investors are awaiting a slew of U.S. economic data this week, including the November core PCE index report, the Fed’s preferred measure of underlying inflation on Friday.

Meanwhile, the Bank of Japan maintained ultra-loose monetary settings as expected, underscoring policymakers’ preference to await more clues on whether wages will increase enough to keep inflation durably near its 2 per cent target.

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