Spot gold gained 1.3% after hitting its lowest level since November 18 in early trading. Prices fell more than 2% yesterday after the Federal Reserve cut interest rates but signaled a slower pace of monetary easing in 2025. Against this background, the US dollar index jumped by 1% and reached its highest level since November 11, 2022, making greenback-priced bullion more expensive for holders of other currencies. Today, the US dollar index declined slightly, but the yield on 10-year US Treasury bonds jumped by 4.2 basis points to 4.54% (the highest value since May 31), which limited further gains in gold prices.
Yesterday, Fed Chairman Jerome Powell said that further monetary easing now depends on progress in reducing stubbornly high inflation. Meanwhile, experts have warned that if Trump's policies do lead to higher inflation, a big risk would be that the Fed may not cut rates next year at all. According to the CME FedWatch Tool, markets see an 8.6% probability of a 0.25% rate cut in January (compared to 20.8% a week ago). Higher rates dull the appeal of the non-yielding asset.
The next catalysts for gold will be US data, namely the GDP report for the 3rd quarter and the November core PCE price index (the Fed's preferred inflation indicator). Economists expect GDP growth to slow to 2.8% q/q from 3% q/q in the 2nd quarter, and the core PCE price index increased by 0.2% compared to October and by 2.9% per annum. In October, the core PCE price index increased by 0.3% and 2.8%, respectively. Experts said that if the PCE data comes in line with expectations that shouldn't be a big surprise, but in case it inches up to 3% and above, gold may come under pressure again.