Gold prices continued to rise on Tuesday after top consumer China pledged to increase policy stimulus to support economic growth while investors are awaiting U.S. inflation data for additional insights into the Federal Reserve‘s interest rate cut trajectory.
In the UAE, gold rates rose with 24-carat gold gaining AED2.5 to AED323.75 and 22-carat gold rising AED2.25 to AED299.75. Additionally, 21-carat gold increased by AED2.25 to AED290.25 while 18-carat gold rose by AED2 to AED248.75.
Globally, spot gold gained 0.15 percent to $2,667.03 per ounce, as of 6:16 GMT. Gold prices hit a two-week high on Monday, supported by China’s central bank resuming purchases after a six-month pause. Meanwhile, U.S. gold futures inched up 0.18 percent to $2,690.69.
The dollar index fell 0.07 percent to 106.08, making bullion more attractive for other currency holders.
China to adopt more proactive fiscal policy
The People’s Bank of China announced on Saturday that it bought 160,000 fine troy ounces of gold in November, ending a six-month pause in purchases and further supporting gold prices. China aims to also adopt a looser monetary policy next year and a more proactive fiscal policy to support economic growth, the policymaking committee said. This marks a shift in the country’s policy stance that has been steady for around 14 years. A decline in China’s interest rates will likely raise demand for gold.
In light of concerns regarding U.S. tariffs on Chinese imports, safe-haven demand for assets like gold may also rise. U.S. President-elect Donald Trump has 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.
Elsewhere, geopolitical tensions in the Middle East rose over the weekend after Syrian rebels took control, forcing President Bashar al-Assad to flee to Russia, driving additional safe-haven flows towards gold.
Fed rate cut bets rise
Trader focus now shifts to U.S. inflation data for November after last week’s stronger-than-expected payrolls report boosted the chances of a Fed rate cut next week. According to the CME FedWatch too, traders currently see an 89.5 percent chance of a Fed rate cut this month.
However, recent hawkish remarks by several Fed officials, along with expectations that Trump’s policies would reignite inflation, suggest that the U.S. central bank could pause its rate-cutting cycle.
Chicago Fed President Austan Goolsbee stated that the labor market appears stable and that the progress on inflation is encouraging, while any pause in the rate-cutting would come if conditions in inflation or the labor market change. Meanwhile, Fed Governor Michelle Bowman said that she would prefer that the U.S. central bank proceeds cautiously and gradually in lowering the policy rate as the underlying inflation remains elevated uncomfortably above the 2 percent target.
The European Central Bank is also expected to cut rates by a quarter point at its policy meeting on Thursday. Non-yielding assets like gold tend to benefit from lower interest rates as this reduces the opportunity cost of holding them. Elsewhere, the U.S. and Britain announced a new wave of sanctions targeting the illicit trade of gold.
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Other precious metals
Amid the rise in gold prices, the precious metals market saw mixed movement on Tuesday. Spot silver rose 0.38 percent to $31.93 while platinum fell 0.25 percent to $936.85 and palladium dipped 0.21 percent to $971.50.
