In the mid-North American session on Tuesday, the price of gold exhibited a steady advance, propelled by a weakening US Dollar and declining Treasury yields. Market participants continued to factor in expectations that the US Federal Reserve (Fed) would implement lower borrowing costs in the coming year. As of the latest update, XAU/USD is trading at $2045, rebounding from a daily low of $2021.84 and registering a gain of 0.90%.
The surge in XAU/USD is attributed to widespread speculation surrounding the Federal Reserve’s potential policy shift. The US Dollar Index (DXY), which gauges the currency’s performance against six major counterparts, is down 0.40% at 102.09. Simultaneously, the US 10-year benchmark note rate hovers at 3.913%, nearing the lowest levels observed over the past four days.
Last week, Federal Reserve Chair Jerome Powell remarked that the tightening cycle had concluded, signaling a potential shift towards easing monetary policy in the upcoming year. Powell’s statement alluded to ongoing discussions about rate cuts within the Fed. However, New York Fed President John Williams, in contrast, expressed reservations last Friday, questioning whether monetary policy is currently restrictive enough.
Despite this internal debate, the market has priced in over 135 basis points of anticipated rate cuts for December 2024, as indicated by fed funds futures contracts on the Chicago Board of Trade (CBOT). The likelihood of a rate cut in March stands at 70%.
Sources cited emphasize that investors are flocking to gold, finding less incentive to part with the precious metal amid the belief that the Federal Reserve may implement interest rate cuts before achieving their 2% inflation target.
In terms of economic data, recent US housing statistics, while solid, failed to significantly impact the value of the Greenback (USD). Looking ahead, the US economic calendar is set to become more active with the release of Q3’s final GDP data, followed by Durable Goods Orders, the Fed’s preferred inflation gauge (the core PCE), and additional housing data in the upcoming week.
