Gold prices staged a modest recovery on Thursday after dipping to four-week lows below $2600 per ounce during London trading. The decline followed the US Federal Reserve’s decision to cut interest rates as anticipated, but also announced a significant reduction in the scale of its expected rate cuts for 2025.
Global stock markets reacted negatively to the Fed’s updated outlook, with the S&P 500 plunging more than 2.9% on Wednesday. The drop marked the index’s steepest one-day decline since early August, when a similar sell-off occurred in response to shifting monetary policy, notably in Japan.
The Fed’s policy committee raised its end-2025 interest rate forecast from 3.4% to 3.9% on Wednesday, aligning with expectations in the futures market. Traders on the CME’s FedWatch tool now forecast a 4.03% rate for December 2025, up from an earlier estimate of 2.9% when gold surged past its previous record of $2600 in mid-September.
Gold, which had lost 2.4% in US dollar terms earlier this week, briefly rebounded to $2604, while silver fell sharply by 4.3%, hitting its lowest point in over three months at $29.20 per ounce.
Chile, the world’s second-largest silver producer, cut its key interest rate by 0.25 percentage points to 5% on Tuesday, marking the lowest level in nearly three years. In contrast, Indonesia kept its rate unchanged at 6.0% as expected.
Other global central banks also made policy moves following the Fed’s decision. Japan maintained its rate at a 2008 high of 0.25%, while Taiwan held at 2.0%, and Norway kept its rate at 4.5%. In contrast, both the Philippines and Sweden reduced their rates by 0.25% to 5.75% and 2.5%, respectively.
The Bank of England held its rate at 4.75%, citing rising inflation, increased pricing pressures in the services sector, stronger wage growth, and the impact of the UK government’s Autumn Budget. The central bank also mentioned geopolitical tensions and uncertainties surrounding US trade policy as key factors influencing its decision.
As market expectations for the Fed’s rate decision shifted, gold prices surged to all-time highs above $2300 in early 2024, despite rate projections climbing above 5% in April. By September, when market expectations for end-2024 rates fell to 4.1%, gold prices hit a new peak above $2700. The rise in gold prices has continued despite projections for the Fed Funds rate to reach 4.33% by the end of 2024.
Amid these developments, global equities mostly suffered losses. Japan’s Nikkei 225 fell 0.7%, Germany’s DAX dropped 0.9%, and the UK’s FTSE All-Share lost 1.0%. The only major stock market to remain stable was China’s CSI300, which held steady after a sharp drop in US markets the previous day. The Chinese Yuan also hit a new 14-month low against the US Dollar.
The value of the Yen continued to slide, keeping the price of gold in yen above ¥13,000 per gram, though it dipped in Euro and Pound terms. The price of gold in Euros dropped below €2500 per ounce, its lowest in two weeks, while the UK Pound price of gold fell below £2600.
Meanwhile, commodity prices also retreated, with copper, wheat, and crude oil all losing value as the US Dollar strengthened to a two-year high. Government bond markets saw widespread declines, pushing up borrowing costs, while yields on 12-month and two-year US Treasury bonds rose to three-week highs of 4.26% and 4.31%, respectively.
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