Gold Prices Rise on Fed Rate Cut Expectations and Weaker Dollar

TLDR

• Gold prices rose 0.3% to $4,209.43 per ounce as the U.S. dollar weakened near a five-week low
• Markets are pricing in an 87% probability of a 25-basis-point Fed rate cut at the December 9-10 policy meeting
• Weak U.S. economic data including declining private payrolls and moderate consumer spending growth supported rate cut expectations
• Silver hit a record high of $59.32 per ounce on Friday and has doubled in price this year
• Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold

Gold prices climbed on Monday as investors anticipated a Federal Reserve interest rate cut this week. The precious metal gained 0.3% to reach $4,209.43 per ounce.

The U.S. dollar index dropped to near one-month lows, making gold more affordable for international buyers. A weaker dollar typically supports gold prices by reducing costs for overseas purchasers.

Markets are now pricing in an 87% probability of a 25-basis-point rate cut at the Fed’s December 9-10 policy meeting. This expectation follows a series of weak economic reports released last week.

U.S. consumer spending showed moderate growth in September, reflecting slowing economic momentum. Private payrolls recorded their steepest decline in over two-and-a-half years during November.

The core Personal Consumption Expenditures index, the Fed’s preferred inflation gauge, showed only a mild monthly increase. The annual rate continued to drift lower according to the delayed report.

Rate Cuts Support Precious Metals

Lower interest rates typically increase demand for non-yielding assets like gold. The reduced opportunity cost makes holding bullion more attractive to investors.

U.S. gold futures for December delivery fell 0.1% to $4,239.40 per ounce. The divergence between spot and futures prices reflected mixed market sentiment.

However, gains remained limited as investors maintained a cautious stance. U.S. Treasury yields edged higher in recent sessions, offsetting some support from the weaker dollar.

Some Fed policymakers have warned against premature easing in recent weeks. This divide among officials has created uncertainty about the policy outlook.

Traders are now waiting for the Fed’s decision and Chair Jerome Powell’s press conference. The events will provide clarity on whether the central bank is beginning an easing cycle.

Silver Reaches Record Territory

Silver prices gained 0.3% to $58.43 per ounce on Monday. The white metal hit a record high of $59.32 per ounce on Friday.

Silver has doubled in price this year, driven by supply deficits and its designation as a critical mineral by the U.S. Staunovo noted that silver benefits from the same factors as gold.

Expectations of improving industrial demand have helped silver outperform gold recently. Monetary and fiscal stimulus measures are expected to boost industrial consumption.

Platinum gained 0.6% to $1,650.90 per ounce. Palladium rose 1% to $1,471.26 per ounce.

Copper futures on the London Metal Exchange edged up 0.3% to $11,681.20 a ton. U.S. copper futures declined 0.7% to $4.67 a pound.

UBS analyst Staunovo projected gold prices could reach $4,500 per ounce next year if the Fed continues cutting rates.

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