Gold prices fell from their two-week high on Wednesday as geopolitical tensions escalated and expectations of another rate cut by the U.S. Federal Reserve next week rose ahead of the key U.S. inflation report due later in the day.
In the UAE, gold rates rose with 24-carat gold gaining AED2.25 to AED327.25 and 22-carat gold rising by AED2 to AED303. Additionally, 21-carat gold increased by AED2.25 to AED293.5 while 18-carat gold rose by AED1.75 to AED251.5.
Globally, spot gold fell 0.12 percent to $2,690.91 per ounce, as of 6:06 GMT, after hitting a 2-week high at $2,698.47 earlier in the session. Meanwhile, U.S. gold futures gained 0.44 percent to $2,730.57.
U.S. inflation data
Investor focus today is on the U.S. Consumer Price Index (CPI), which is expected to have risen by 0.3 percent in November. The data could help set market expectations for the Fed’s 2025 policy and rate cut trajectory. If the CPI data was in line with the central bank’s expectations, the possibility of a rate cut increases, supporting gold prices.
In seven days, the Federal Reserve committee will meet to decide its stance on the interest rate policy. Traders currently see an 86.1 percent chance of a 25-basis-point rate cut this month, according to the CME FedWatch tool.
However, recent hawkish remarks from several influential policymakers, including Fed Chair Jerome Powell, suggested that the U.S. central bank might adopt a more cautious approach to cutting interest rates.
Geopolitical risks support bullion
Central bank buying, monetary policy easing and geopolitical tensions have propelled bullion to multiple record highs this year, placing it on track for its best year since 2010, with almost a 31 percent increase so far.
Despite the recent decline, geopolitical risks stemming from the worsening Russia-Ukraine war and tensions in the Middle East, along with concerns over U.S. President-elect Donald Trump’s tariff plans, might continue to offer some support to the safe-haven asset. Moreover, the expected rate cuts by major central banks should limit losses for gold prices.
The Bank of Canada will likely cut rates later today, while the European Central Bank and the Swiss National Bank are likely to follow suit on Thursday, which should continue to support gold prices.
Ukraine’s President Volodymyr Zelenskyy issued orders to increase funding for new drones and raised the idea of foreign troops being deployed in Ukraine until it could join the NATO military alliance. In the Middle East, tensions in Syria rose following the collapse of President Bashar al-Assad’s regime over the weekend.
Gold is considered a safe investment during economic and geopolitical turmoil and tends to thrive in a low-interest-rate environment.
Inflation concerns persist
Concerns regarding the Fed’s next move come amid expectations that Trump’s expansionary policies will rekindle inflationary pressures and might push the central bank to adopt a less dovish stance which might limit gains for gold prices.
However, concerns about trade tariffs and their effect on the global economic outlook may impact investor appetite for riskier assets, further supporting demand for safe-haven gold. Trump pledged to impose big tariffs against America’s three biggest trading partners, Mexico, Canada, and China, and also threatened a 100 percent tariff on ‘BRICS’ nations.
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Other precious metals
Amid the decline in gold prices, the precious metals market saw mixed movement on Wednesday. Spot silver fell 0.97 percent to $31.59 while platinum lost 0.90 percent to $933.85 and palladium rose 0.31 percent to $970.99.
