Gold prices fell after the release of mixed US economic data, leading investors to take profits following a four-day rally. This price correction comes as market participants assess the implications of recent economic indicators and their potential impact on future Federal Reserve policy.
November’s wholesale inflation figures showed an unexpected acceleration driven primarily by a surge in egg prices. However, other categories pointed to a more subdued increase in the core Personal Consumption Expenditures (PCE) index, the Federal Reserve’s preferred inflation gauge. Simultaneously, initial jobless claims rose to a two-month high, suggesting a potential softening in the labor market.
Bullion experienced its most significant intraday decline in over two weeks, dropping as much as 1.4%. This pullback followed substantial gains in the previous session, fueled by a consumer price index report that reinforced expectations of a 25-basis-point interest rate cut at the upcoming Federal Reserve meeting.
According to Ole Hansen, head of commodity strategy at Saxo Bank, the current market environment is characterized by low conviction and cautious positioning. This means that any price reversal is likely to be met with swift profit-taking, amplifying price movements.
While market expectations for a December rate cut by the Fed are now near certain, the outlook for monetary policy in 2025 remains uncertain, particularly with the return of Donald Trump to the White House. Christopher Wong, FX strategist at Oversea-Chinese Banking Corp., noted that markets are pricing in a potential pause in rate cuts by January 2025 and the possibility of a slower pace of reductions thereafter. Lower interest rates generally support gold prices, as they reduce the opportunity cost of holding the non-yielding asset.
The European Central Bank also lowered interest rates for the third consecutive meeting, signaling further reductions in 2025 as inflation approaches its 2% target and the economy faces challenges. Despite the recent dip, gold is still poised for its largest annual gain since 2007, buoyed by Fed easing, safe-haven demand, and consistent purchases by central banks worldwide.
Market observers are also monitoring a growing disparity between the New York and London gold and silver markets, with premiums for futures contracts rising sharply. Analysts attribute this divergence to concerns about potential US import tariffs on precious metals under the Trump administration.
As of late morning in New York, gold for immediate delivery had fallen 1.4% to $2,680.99 per ounce. This decline follows gold’s record high set in late October, when prices briefly surpassed $2,790. The Bloomberg Dollar Spot Index edged up 0.2%. Other precious metals, including silver, platinum, and palladium, also experienced declines. The interplay between economic data, central bank policy, and geopolitical factors will continue to shape the trajectory of gold prices in the coming months.
