Gold supported by rising Fed rate cut expectations

Gold prices remained firm on Thursday, trading around $2,640 per ounce. If gold prices rise, they may encounter resistance at $2,725 per ounce, while if gold prices decline, support may be encountered near $2,600 per ounce. 

Geopolitical tensions cooled this week, leading to a drop in safe-haven demand. A 60-day ceasefire between Israel and Lebanon was officially declared on Wednesday. The deal will hopefully lead to discussions of a peace treaty and put an end to the 14-month conflict and has the potential to restore stability in the Middle East. However, reports of the ceasefire deal had already led to overselling of gold earlier in the week, putting pressure on gold prices. The news of the ceasefire had already been priced in by markets and when the official announcement came gold prices went up. 

The US Federal Reserve cut interest rates by 25 basis points in November to a target range of 4.50% to 4.75%. Gold prices are supported by expectations of further Fed rate cuts. Market odds of a December rate cut rose to approximately 70% this week, boosting gold prices. 

Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar remained steady on Thursday, and the index hovered close to 106.1. US treasury yields remained unchanged, with the US 10-year bond yielding 4.26%. Thursday was a bank holiday in the US in observance of Thanksgiving Day. Treasury yields remain the same on bank holidays and the dollar usually trades with low volatility.

Gold prices skyrocketed to an all-time high of $2,700 per ounce earlier this month, but had been moving in overbought territory, and collapsed after the announcement of Donald Trump’s victory in the US Presidential elections. 

The announcement that President-elect Donald Trump has chosen hedge fund manager Scott Bessent as the new US Secretary of the Treasury put pressure on gold prices on Monday. Bessent is known for his cautious stance, and he is considered a safe choice to take over from Janet Yellen as the next US Treasury Secretary, which is lowering the demand for safe-haven assets.

Concerns over Trump’s proposed tariffs, however, raised safe-haven demand on Tuesday, boosting gold prices. President-elect Donald Trump communicated more tariff measures on his social media. Trump stated that his administration would impose an additional 25% tariff on imports from Canada and Mexico, with an additional 10% to the 60% already announced during his election campaign on Chinese goods. 

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Written by:
Myrsini Giannouli

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