Gold under pressure by reduced rate cut expectations

Gold prices dipped from $2,652 to $2,649 per ounce on Tuesday, ahead of Wednesday’s Fed rate decision. If gold prices rise, they may encounter resistance at $2,726 per ounce, while if gold prices decline, support may be encountered near $2,630 per ounce. 

Gold prices are supported by increased Fed rate cut expectations. The US Federal Reserve cut interest rates by 25 basis points in November to a target range of 4.50% to 4.75%. Markets this week will focus on the Fed monetary policy meeting on the 18th. 

Fed policymakers have been speaking in favor of a rate cut in December in the past few weeks, and a 25-basis point rate cut is fully priced in, boosting gold prices. Markets anticipate, however, that the Fed will lower interest rates on Wednesday but will point to a hawkish outlook for the following months. Many analysts predict that the central bank will keep interest rates steady in January, putting pressure on 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 Tuesday ahead of the Fed rate decision on Wednesday, and the dollar index hovered close to the 106.9 mark. US treasury yields remained firm, with the US 10-year bond yielding approximately 4.40%.  

Geopolitical tensions continue to rise, boosting demand for safe-haven assets. The civil war in Syria has been rekindled, further destabilizing the region. In a surprise offensive, Syrian rebels have captured Damascus and toppled the government. The Syrian rebel army is currently in charge and political instability in Syria is reigniting geopolitical risks, boosting gold prices.

In addition, 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, with Russia threatening to use nuclear missions against Ukraine.

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Written by:
Myrsini Giannouli

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