Gold prices experienced a mild setback on Wednesday, marking the first decline in four trading days after reaching a peak of $2,071 on December 22. The retreat comes as the U.S. Dollar (USD) gains ground in a market characterized by caution, despite a somewhat lackluster performance in U.S. Treasury bond yields. The thin trading environment post-Christmas has prompted investors to reassess their positions, keeping a watchful eye on the latest macroeconomic developments.
The current market mood, coupled with subdued activity on the U.S. Federal Reserve (Fed) interest rate cut expectations for the upcoming year, has left gold buyers in a state of uncertainty. The precious metal had enjoyed a three-day uptrend, supported by growing anticipations of Fed rate cuts in 2024. Presently, markets are reflecting a 79% probability of a rate cut commencing in March 2024, as per the CME FedWatch tool, with projections of up to 153 basis points (bps) of cuts for the coming year.
The dovish sentiment surrounding the Fed’s policy shift gained momentum following data from the Commerce Department, revealing that the Fed’s preferred inflation metric, the Core Personal Consumption Expenditures (PCE) Price Index, increased by a modest 0.1% in November, showing a year-on-year rise of 3.2%.
In response to this data, the U.S. Dollar Index dipped to a fresh five-month low of 101.43, while U.S. Treasury bond yields tested multi-month lows, with the benchmark 10-year U.S. Treasury bond yields currently hovering around 3.85%.
Looking ahead, Gold investors are expected to proceed with caution as the full return of markets coincides with a truncated pre-New Year week, characterized by muted volumes. Thin liquidity conditions may expose gold prices to heightened volatility. On Wednesday, the U.S. economic calendar features the low-impact Richmond Fed Manufacturing Index, but all eyes will be on Wall Street sentiment as investors seek cues for the precious metal’s trajectory.
