Gold prices fell sharply on Thursday, retreating from a two-week high, as U.S. producer prices for November came in stronger than expected. The unexpected rise in inflationary pressures sparked concerns that the Federal Reserve could adopt a more aggressive stance on interest rates in the coming months. As a result, the U.S. dollar gained strength, further weighing on gold prices.
At 10:20 ET (15:20 GMT), spot gold was down 1.4%, trading at $2,680.44 per ounce, while February gold futures dropped 1.9%, to $2,704.66 per ounce. The decline followed a significant rise in U.S. producer prices, which added pressure to gold after a period of bullish momentum earlier in the week.
PPI Data Suggests Inflationary Pressures May Persist
Gold’s weakness on Thursday was primarily driven by data showing that U.S. producer prices rose more than expected in November. The Producer Price Index (PPI) climbed 0.4% last month, following an upwardly revised 0.3% increase in October. Economists had anticipated a more modest 0.2% gain. Over the past 12 months, the PPI surged by 3.0%, up from the 2.6% increase reported for October.
This higher-than-expected inflation data came just one day after the release of the Consumer Price Index (CPI), which showed that U.S. inflation remained stable. Together, these reports have led traders to increase their expectations that the Federal Reserve will proceed with its third consecutive interest rate cut next week in an effort to support the labor market.
However, while the Fed’s rate cut next week is widely anticipated, the stronger-than-expected PPI data suggests that further cuts in 2025 may not be as likely. The possibility of a more hawkish Fed in the future, in response to persistent inflationary pressures, has provided support to the U.S. dollar, which rose sharply in the wake of the PPI release. The dollar’s resilience has limited gold’s potential for further gains, as investors shifted their focus toward the greenback amid increasing uncertainty over inflation and the Fed’s future policy decisions.
Gold’s Bullish Long-Term Outlook Still Intact
Despite Thursday’s losses, analysts remain optimistic about gold’s prospects in the longer term. According to ING, the precious metal’s rally is not over yet. Gold has enjoyed a spectacular rise in 2024, surging by 25% year-to-date. This record-breaking performance has been driven by several key factors, including the Fed’s rate cuts, increased purchases by central banks, and strong demand for safe-haven assets amid ongoing geopolitical and economic uncertainties.
ING analysts note that these same factors are expected to continue to drive gold prices higher in 2025. The Federal Reserve’s cautious stance on interest rates, combined with ongoing global geopolitical instability and economic challenges, should support gold’s upward momentum in the coming year. As such, they anticipate that gold could reach new highs as the year progresses.
While the stronger U.S. dollar has limited gold’s upside in the short term, analysts at ING believe the long-term fundamentals remain bullish. They emphasize that central bank gold purchases and growing investor interest in the metal as a hedge against economic uncertainty will continue to support gold’s value.
Other Precious Metals Also Experience Declines
Gold was not the only precious metal to face losses on Thursday. Platinum futures dropped 1.1%, falling to $940.40 per ounce, while silver futures declined by 4.3%, trading at $31.54 per ounce. The broad-based decline across precious metals suggests that investors are shifting their attention to other assets amid concerns about inflation and interest rates.
Silver, in particular, has been under pressure in recent months, as rising yields on U.S. Treasury bonds and the strengthening dollar have made non-yielding assets like silver less attractive to investors. Platinum, which is primarily used in industrial applications, has also faced headwinds, with investors concerned about the potential impact of a slowing global economy on demand for the metal.
Copper Prices Retreat After China Stimulus Optimism Fades
In the base metals market, copper prices also saw a pullback on Thursday. Benchmark copper futures on the London Metal Exchange (LME) fell by 1% to $9,086 per ton, while February copper futures dropped 0.6%, to $4.2390 per pound. The decline in copper prices came after a strong rally earlier in the week, which had been driven by optimism surrounding potential stimulus measures from China, the world’s largest consumer of copper.
On Wednesday, both copper contracts hit a one-month high as news surfaced that Beijing’s Politburo had adopted a more dovish tone on monetary policy. The Chinese government signaled its willingness to loosen fiscal and monetary policies further to support economic growth. Beijing’s stance came ahead of the Central Economic Work Conference, which is expected to conclude later on Thursday. This high-level meeting is anticipated to outline the country’s economic priorities for 2025 and offer additional guidance on potential stimulus measures.
The optimism that had lifted copper prices earlier in the week began to fade on Thursday as investors awaited further details on China’s stimulus plans. While the Chinese government has made it clear that it is committed to supporting the economy, there is still uncertainty about the scale and timing of the measures. Copper prices are likely to remain volatile in the short term as investors digest the outcome of the economic conference and assess the broader outlook for global demand.
Conclusion
Thursday’s market movements reflect ongoing volatility across commodities, with precious metals like gold, platinum, and silver facing downward pressure as the U.S. dollar strengthens. Meanwhile, copper prices have retreated after a brief rally fueled by optimism over Chinese stimulus measures.
The outlook for gold remains positive in the longer term, with analysts expecting the precious metal to continue benefiting from factors such as the Federal Reserve’s cautious approach to interest rates, rising central bank gold purchases, and heightened demand for safe-haven assets. However, the strength of the U.S. dollar and the potential for further inflationary pressures may continue to limit gold’s upside in the near term.
Related topics:
What Did Spot Silver Close At Today
