Gold prices found themselves in a holding pattern on Wednesday, as markets exhibited caution ahead of the Federal Reserve’s concluding meeting for the year. Investors eagerly awaited the central bank’s stance on non-yielding assets amidst recent indicators of strength in the labor market and persistent U.S. inflation.
Expectations for an early 2024 interest rate cut by the central bank were tempered due to the robust labor market and inflationary pressures. While the Fed was anticipated to maintain current interest rates in its Wednesday decision, uncertainties loomed regarding its outlook for 2024.
The Fed-induced uncertainty triggered volatile swings in gold prices this month, reaching record highs of over $2,100 per ounce before experiencing a notable downturn. Recent losses resulted in the precious metal falling below the coveted $2,000 per ounce level, a trend exacerbated by the strengthening dollar in anticipation of the Federal Reserve’s decision.
As of 00:26 ET (05:26 GMT), spot gold stabilized at $1,979.06 per ounce, while gold futures expiring in February remained flat at $1,993.70 per ounce.
Federal Reserve Expected to Maintain Rates; Market Divided on 2024 Rate Cuts
Analysts widely expected the central bank to keep interest rates steady as it concluded its final meeting for 2023. However, attention shifted to signals from Federal Reserve Chair Jerome Powell regarding the trajectory of rates throughout 2024. Concerns loomed over the possibility of a hawkish outlook from Powell, who has consistently advocated for a patient approach to rate adjustments.
Powell, while maintaining a higher-for-longer stance on rates, acknowledged substantial progress against inflation in the current year. Despite this acknowledgment, inflation remained above the Fed’s 2% annual target in November.
Gold markets braced for potential disruption in the event of hawkish signals from the Federal Reserve, particularly as doubts grew among investors about the likelihood of a rate hike by March 2024. Fed funds futures prices indicated a 43% chance of a rate cut in March, a notable decrease from the 60% priced in the previous week. The prospect of higher rates posed challenges for gold, as it increased the opportunity cost of investing in the precious metal.
