In the early hours of the Asian session on Thursday, the price of gold (XAU/USD) soared above the $2,000 mark, driven by a weakened US Dollar (USD) and reduced Treasury yields following the Federal Reserve (Fed) meeting. As of the latest report, gold is trading at $2,020, reflecting a 0.16% gain for the day.
The US Dollar Index (DXY), a gauge of the USD against a basket of weighted currencies, experienced a significant decline from 103.95 to 102.90. Concurrently, Treasury yields saw a decline, with the 10-year yield reaching 4.02%, marking its lowest level since August.
During the recent meeting, the Fed opted to keep the interest rate unchanged at 5.25%–5.50%, aligning with market expectations. The Fed’s statement leaned dovish on monetary policy guidance, and Fed Chair Jerome Powell, during the subsequent press conference, refrained from pushing back against the market’s anticipation of early rate cuts. Powell explicitly mentioned the Fed’s readiness to implement rate cuts, even if the US economy avoids recession in 2024.
While the Fed suggested the potential for three rate cuts by three-quarters of a percentage point in 2024, market expectations, indicated by the fed funds futures, are pricing in a more significant 1.5 percentage points of rate cuts in the years ahead, according to the CME FedWatch Tool.
US economic data also contributed to the movement in gold prices. The Producer Price Index (PPI) for November reported a 0% month-on-month figure, down from a 0.4% decrease in the prior reading. The annual PPI declined by 0.9%, in contrast to a 1.2% rise in the preceding period. The annual PPI, excluding Food & Energy, showed a decrease from 2.3% to 2.0% year-on-year, falling short of market expectations.
Looking ahead, gold traders are expected to closely monitor additional US economic data, including reports on weekly Jobless Claims and Retail Sales. Projections suggest a 0.1% month-on-month drop in Retail Sales for November. Furthermore, the release of Chinese Retail Sales and Industrial Production data on Friday is anticipated to provide additional guidance for gold markets.
