Gold prices bounced back on Thursday, erasing earlier losses after falling to their lowest level in a month, following signals from the Federal Reserve about a potential slowdown in rate cuts next year.
As of 0748 GMT, spot gold had gained 1.2%, rising to $2,617.96 per ounce, after briefly dipping to its lowest price since November 18 earlier in the session. However, U.S. gold futures were trading 0.8% lower at $2,632.00.
The precious metal had seen a decline of more than 2% on Wednesday after the Federal Reserve lowered interest rates by 25 basis points, as expected. However, the central bank indicated fewer rate cuts would be implemented by the end of 2025, which strengthened the U.S. dollar and boosted bond yields. Federal Reserve Chair Jerome Powell stated that any further reductions in borrowing costs would depend on continued progress in tackling persistent inflation.
“The key question now is whether the Fed will follow through with additional rate cuts next year, particularly if inflation pressures persist,” said Kelvin Wong, Senior Market Analyst for Asia Pacific at OANDA. “The risk is that the Fed may hold off on cuts if inflation remains stubbornly high.”
Markets are now anticipating that the Fed will keep interest rates unchanged at its upcoming January meeting.
Ajay Kedia, Director at Kedia Commodities in Mumbai, commented, “Typically, rate cuts are supportive for gold, but today’s rally is largely driven by short-covering after the earlier dip.”
Traders are awaiting several key U.S. economic indicators, including GDP data, initial jobless claims, and core Personal Consumption Expenditures (PCE) data, which is the Fed’s preferred measure of inflation. The PCE data, due on Friday, will be closely watched for any signs of inflationary pressure.
Wong noted, “If the PCE data comes in line with expectations, it shouldn’t have a major impact on gold. However, if inflation rises above 3%, gold could face renewed pressure.” He added that short-term speculators are likely to seek buying opportunities in the wake of recent price drops.
Higher interest rates typically reduce the appeal of gold, which does not offer yield compared to interest-bearing assets.
In other precious metals, spot silver rose 0.8% to $29.59 per ounce, platinum gained 0.9% to $927.75, and palladium advanced 1.7% to $917.86.
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