Gold prices remained relatively stable on Tuesday amidst light year-end trading, although they are on track for impressive annual gains driven by the U.S. Federal Reserve’s interest rate cuts this year.
In the UAE, gold rates held relatively stable, with 24-carat gold at AED 315.15 and 22-carat gold at AED 292.25. Additionally, 21-carat gold was priced at AED 283, while 18-carat gold was at AED 242.50.
Spot gold held steady at $2,607.65 per ounce, while February gold futures dipped 0.2 percent to $2,620.22 an ounce by 00:23 ET (05:23 GMT). Trading in gold often experiences thinner volumes and subdued prices as the year concludes, with many institutional traders and market participants closing their positions before the holiday season.
Gold set for significant annual gains
The yellow metal has surged over 26 percent in 2024, driven by the Fed’s substantial rate cuts earlier this year and ongoing geopolitical tensions worldwide. When interest rates are low, the opportunity cost of holding gold diminishes compared to interest-bearing assets such as bonds or savings accounts. Consequently, investors typically allocate more capital to gold as a safeguard against uncertainty and as a store of value.
While gold prices have generally increased throughout the year, the Fed’s December meeting created a bump in prices, indicating fewer rate cuts in the coming year. Policymakers forecast only two additional rate cuts in 2025, contrary to earlier expectations of four cuts, as persistent inflation remains a major concern.
Following the Fed meeting, gold prices sharply declined and have exhibited subdued movements since, reflecting a cautious outlook for the upcoming year. With expectations of fewer rate cuts, the dollar has strengthened further, exerting additional pressure on gold. A stronger dollar tends to weigh on gold prices, making the metal more expensive for buyers using other currencies.
Other precious metals also saw slight declines on Tuesday. Platinum futures fell 0.4 percent to $913.65 an ounce, while silver futures dipped 0.3 percent to $29.315 an ounce.
Copper prices weak despite China’s expanding factory activity
In the industrial metals sector, copper prices remained subdued due to the strong dollar. The U.S. Dollar Index was slightly lower in Asian trading on Tuesday but remained near a two-year high reached earlier this month. Data released on Tuesday indicated that China’s manufacturing activity expanded for the third consecutive month in December, supported by a series of new stimulus measures. However, the growth was slightly below market expectations and lower than the previous month’s figures.
Benchmark copper futures on the London Metal Exchange fell 0.2 percent to $8,925.50 a ton, while February copper futures remained largely unchanged at $4.0885 a pound.
Gold prices increased on Monday as investors sought more insights regarding the Fed’s interest rate trajectory and President-elect Donald Trump’s tariff policies. In the UAE, gold prices were mostly stable, with 24-carat gold and 22-carat gold holding steady at AED317.5 and AED294, respectively. Additionally, 21-carat gold decreased by AED0.25 to AED284.5, while 18-carat gold remained at AED244.
Globally, spot gold rose 0.08 percent to $2,624.36 per ounce as of 6:09 GMT, while U.S. gold futures increased by 0.15 percent to $2,635.82. The dollar index dipped 0.01 percent to 107.99, making bullion more appealing for holders of other currencies.
Gold expected to remain supported in 2025
The dollar index has remained relatively stable, just below its peak since November 2022, which has helped to sustain gold prices’ recent gains. Gold has surged over 27 percent this year, positioning it for its best annual performance since 2010, driven by significant interest rate cuts and heightened geopolitical uncertainties. The precious metal reached an all-time high of $2,790.15 on October 31, fueled by major Fed rate easing, including a notable rate cut in September.
Geopolitical tensions have been pivotal in gold’s rise this year and are likely to continue to provide support in 2025, particularly with Trump’s administration taking office. Ongoing geopolitical risks related to the prolonged Russia-Ukraine conflict and persistent tensions in the Middle East are expected to boost gold prices in the coming year. Gold prices are likely to remain stable amid lower trading volumes during the holiday season.
Markets anticipate Trump’s return to the White House
Markets are now looking forward to significant U.S. policy shifts, including potential tariffs, deregulation, and tax changes in 2025 with Trump’s return to the White House in January. Traders anticipate that Trump’s expansionary policies could reignite inflationary pressures, potentially pushing the central bank toward a less dovish stance, which might limit gains for gold prices.
Trump has pledged to impose substantial tariffs against America’s three largest trading partners—Mexico, Canada, and China—and has also threatened a 100 percent tariff on ‘BRICS’ nations. A renewed trade conflict with major players like China could disrupt global commerce, create supply chain bottlenecks, and increase costs for consumers and businesses.
Another key promise from Trump’s campaign involves rolling back green regulations that currently hinder oil and gas drilling and coal mining. If enacted, these deregulatory measures may boost shares in the traditional energy sector, reversing the gains achieved under the previous administration’s climate policies.
Fed expected to cut rates twice in 2025
The Fed cut its benchmark interest rate by a quarter point at the December meeting, bringing the total rate cuts for the year to 100 basis points. However, the central bank has signaled fewer cuts in 2025, with the latest Dot Plots indicating only two rate reductions next year. Higher rates diminish the appeal of non-yielding assets like gold.
Recent U.S. economic data has shown a robust labor market, which may exert pressure on the Fed to maintain interest rates. Inflation rose to 2.4 percent year-on-year in November, up from 2.3 percent during the same period last year. Additional recent data revealed that the U.S. economy grew faster than anticipated in the third quarter, reinforcing expectations that the central bank will adopt a cautious approach to policy easing.
