Gold prices remain flat on hawkish Fed outlook

Gold prices remained flat on Monday, trading around the $2,635 per ounce level. If gold prices rise, they may encounter resistance at $2,664 per ounce, while if gold prices decline, support may be encountered near $2,596 per ounce. 

Gold prices are driven by opposing forces. Increased safe-haven demand due to geopolitical tensions is driving gold prices up. In addition, the recent uncertainty surrounding President-elect Donald Trump’s proposed trade tariffs is driving investors towards safe assets. On the other hand, however, the Fed’s recent hawkish shift is putting pressure on gold prices. 

On Monday, reports that Trump’s tariffs will be more moderate than previously anticipated, caused turmoil in markets. According to the Washington Post, Trump is considering imposing international tariffs only related to sectors deemed critical to national or economic security. Trump, however, later denied these rumors, stating that the claims by the Washington Post were completely false.

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 dipped on Monday and the dollar index retreated from a two-year high, dropping from 109.0 to 108.3. Gold prices remained flat on Monday, however, as the dollar’s retreat was counterbalanced by rising US treasury yields. US treasury yields increased on reduced Fed rate cut expectations, with the US 10-year bond yielding 4.63%.       

Gold prices are supported by increased Fed rate cut expectations. The US Federal Reserve cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%. Fed Chair Jerome Powell delivered a hawkish speech after the meeting, emphasizing the need to be cautious about further rate cuts. Powell stated that the Fed’s approach will remain data-driven and hinted that the pace of future rate cuts will be slower. 

In addition, the Fed’s updated dot plot was more hawkish than anticipated, bringing down expectations of future rate cuts. The Fed’s latest dot plot indicated that only two rate cuts will take place in 2025, down from four projected in September. 

Safe-haven demand remains high, due to uncertainty in the Middle East, boosting gold prices. The civil war in Syria has been rekindled, further destabilizing the region. Tensions between Israel and Lebanon have cooled after the ceasefire deal, but hostilities between Israel and Hamas continue in the Gaza area. Meanwhile, the situation between Russia and Ukraine remains critical.

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Written by:
Myrsini Giannouli

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