Gold prices edged up on Monday as investors awaited an interest rate cut from the Federal Reserve this week and policymaker comments to gauge the policy outlook for next year.
In the UAE, gold rates rose, with 24-carat gold and 22-carat gold gaining AED0.5 to AED321.25 and AED297.5, respectively. Twenty-one-carat gold also gained AED0.5 to AED288 while 18-carat gold rose AED0.25 to AED246.75.
Globally, spot gold gained 0.14 percent to $2,652.63 per ounce, as of 5:54 GMT, while U.S. gold futures fell 0.22 percent to $2,669.82.
Market expects quarter-point rate cut
The market has already priced in a 25-basis-point rate cut this week. Therefore, investors will focus mainly on the Fed’s tone and comments regarding future rate cuts amid rising inflation and uncertainty regarding President-elect Donald Trump’s possible inflationary policies.
Traders are pricing a 93.4 percent chance of a quarter-point cut during the Fed’s December 17-18 meeting and only an 18 percent chance of another cut in January, according to the CME FedWatch tool.
Investors now seem convinced that the Fed will adopt a more cautious stance on cutting rates next year amid signs that the progress in lowering inflation toward the 2 percent target has stalled, impacting gold prices. However, geopolitical tensions and uncertainties over Trump’s policies might continue to support bullion in the long term. The appeal of non-yielding assets like gold rises in a lower interest rate environment and during economic or geopolitical uncertainty.
Inflation concerns persist
U.S. producer prices rose more than expected in November amid a surge in the cost of food. Data last week showed that consumer prices increased by the most in seven months in November. The U.S. Bureau of Labor Statistics revealed last Thursday that the headline producer price index (PPI) rose 0.4 percent in November and accelerated from 2.6 percent in October to 3 percent during the month on an annual basis.
Signs of rising inflation and expectations that Trump’s expansionary policies will boost inflation suggest that the Fed may adopt a more cautious stance on cutting interest rates next year.
Central banks cut rates
Last week, the European Central Bank cut interest rates for the fourth time this year while the Swiss National Bank cut its interest rate by 50 basis points, its biggest reduction in almost 10 years. The Bank of Canada also slashed its key policy rate by 50 basis points to 3.25 percent to help address slower growth, further supporting gold prices amid global uncertainties.
Geopolitical tensions escalate
Persistent geopolitical risks stemming from the Russia-Ukraine war and tensions in the Middle East, along with concerns over Trump’s tariff plans, continue to boost safe-haven demand for gold. In addition, central bank buying and monetary policy easing has 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.
Over the weekend, Israel agreed on plans to allocate state money to expand its presence and double its population in the occupied Golan Heights, raising the risk of a further escalation of tensions in the Middle East. Meanwhile, NATO Secretary General Mark Rutte warned that Russian President Vladimir Putin wants to wipe Ukraine off the map and could come after other parts of Europe next.
Other precious metals
Amid the rise in gold prices, the precious metals market saw mixed movement on Monday. Spot silver fell 0.20 percent to $30.50 and platinum dipped 0.64 percent to $918.65. Meanwhile, palladium gained 0.14 percent to $953.71.
