Gold prices fell to around $2,020 as the US dollar saw a modest rebound. This was driven by strong US Services PMI data which weighed on the yellow metal. However, market expectations of a 75 basis point rate cut next year could limit the upside potential for gold.
The Federal Reserve (Fed) kept its interest rate unchanged at 5.25–5.50% at its recent meeting. Fed Chair Jerome Powell took a dovish stance, aiming to lower inflation by the end of 2023 with no projected rate hikes in 2024. Chicago Fed President Austan Goolsbee stated that it’s too early to declare victory in the central bank’s inflation fight, and interest rate decisions will be dependent on incoming economic data. Despite this, New York Fed President John Williams tried to temper market expectations, suggesting that it was premature to consider rate cuts.
US S&P Global Manufacturing PMI dropped to 48.2 in December, the lowest level in four months, while Services PMI rose to 51.3, above market expectations. These figures prompted a rebound in the US dollar, acting as a headwind for gold, which is denominated in USD.
Moving forward, market players will be looking to the Fed’s preferred inflation gauge, the Personal Consumption Expenditures Price Index (PCE), due on Friday. Prior to this, the US Building Permits and Housing Starts data will be released on Tuesday, with Gross Domestic Product Annualized for the third quarter (Q3) due on Wednesday. These key figures could provide a clearer direction for the gold price.
Additional Insight:
Investors are closely monitoring the Federal Reserve’s stance on inflation and interest rates, as these will heavily impact the movement of the US dollar and subsequently the price of gold. The upcoming economic data and announcements from the Fed will be crucial in determining the short-term direction of the gold market.
