94Ha Viewpoint
The Federal Reserve is set to hold its final interest rate meeting of the year on December 17th-18th. The gold market is expected to remain cautious during this period, awaiting more guidance from the authorities on their outlook for next year.
Last Thursday (December 12th), the U.S. released its Producer Price Index for November, which showed a 0.4% increase, the largest in the past five months. This unexpected inflation has raised concerns among investors about the Federal Reserve adjusting its rate-cutting pace. Spot gold prices fell by 1.21% last Friday (December 13th) to $2,648.23 per ounce, but still ended the week with a 0.57% increase. Meanwhile, futures gold prices dropped by 1.24% to $2,675.80 per ounce, but also saw a 0.61% increase for the week.
Adrian Day, the president of Adrian Day Asset Management, anticipates a downward trend in gold prices this week. He stated, “The market has already factored in the possibility of a rate cut by the Federal Reserve next week and speculates that Fed Chair Powell may take a more hawkish stance in the statement.”
According to the CME FedWatch tool, market traders currently expect a 96% probability of a 25-basis-point rate cut at this week’s Fed meeting. Most analysts predict that gold will continue to consolidate further.
Last week, 14 analysts participated in Kitco’s gold survey, with varying opinions on the future of gold prices. Most are adopting a wait-and-see approach. Among them, four analysts (29%) predict an increase, four predict a decrease, and six (43%) forecast further consolidation for gold prices this week.
Darin Newsom, a senior market analyst at Barchart.com, pointed out that the trade war and increased tariffs are expected to push inflation higher, which may lead to higher interest rates and a stronger dollar, putting pressure on commodity prices. He predicts that gold prices might slightly decline next, but amid the increasingly chaotic global situation, investors are likely to show interest in gold.
Sean Lusk, co-director of commercial hedging at Walsh Trading, believes that the strong U.S. dollar and seasonal factors may limit the upward potential for gold. Gold prices have generally been weak in the first two to three weeks of November and December.
The U.S. dollar index has been strong recently, rising over 5.5% year-to-date. A strong dollar typically has a negative impact on gold as it makes gold more expensive for investors who do not trade in dollars.
