Gold prices boosted by rising Fed rate cut expectations

Gold prices edged higher on Wednesday, rising above $2,650 per ounce on increased Fed rate cut expectations. If gold prices rise, they may encounter resistance at $2,670 per ounce, while if gold prices decline, support may be encountered near $2,600 per ounce. 

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 from 75% to 79% on Wednesday, 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 Wednesday, and the index hovered close to 106.3. US treasury yields declined on rising Fed rate cut expectations, with the US 10-year bond yield dropping from 4.22% to 4.18%.

Geopolitical tensions continue to rise, boosting demand for safe-haven assets. A 60-day ceasefire between Israel and Lebanon was officially declared last week. Reports, however, that Israel has been repeatedly violating the ceasefire, propped up gold prices this week. Israel threatened to attack the Lebanese state if its truce with Hezbollah collapses on Tuesday, reigniting geopolitical concerns. 

Meanwhile, a civil war has broken out in Syria, further destabilizing the region. In addition, Russian President Vladimir Putin stated that Russia may use its new nuclear-capable missiles against Ukraine in response to Ukraine’s using long-range missiles to attack Russian territories.

President-elect Donald Trump stated on social media over the weekend that BRICS nations would face 100% tariffs if they created a new currency to replace the dollar. BRICS is an intergovernmental organization comprising nine countries – Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates. Trump’s threats raised concerns that the incoming US President is going to start multiple trade wars, boosting the dollar and putting pressure on gold prices. Trump communicated more tariff measures last week, stating that his administration will 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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