Gold Prices Steady Ahead of the Fed's 2025 Rate-Cut and Forecasts
Monday, 12/16/2024 14:34
GOLD PRICES steadied and edged higher on Monday ahead of the Federal Reserve's final interest-rate decision of the year, with analysts and investors focused on the central bank's language around rate cuts for 2025,
writes Atsuko Whitehouse at BullionVault.
Spot bullion rose 0.7% to $2664 per Troy ounce by Monday lunchtime in London after falling 2.4% in the previous session from
Thursday's 5-week gold price high after new
US inflation data raised doubts over Federal Reserve rate cuts in 2025.
"We have reached the time of year when convictions are low and positions are being held on a short leash," says derivatives platform Saxo Bank's commodity strategist Ole Hansen, forecasting that any price reversal – in either direction – will quickly be met with position-squaring.
The US central bank's final decision for 2024, universally expected to deliver another quarter-point cut, will be released on Wednesday.
So too will the latest quarterly Fed member forecasts for GDP, inflation, unemployment and interest rates ahead, shown by a 'dot plot' graph and closely watched for what the majority of policymakers predict.
"The case for further US rate cuts beyond this month has
decreased meaningfully," Bloomberg quoted an economist on Friday.
"Inflation has remained sticky, the economy and financial markets are overheating, the slight rise in unemployment earlier this year has reversed and the incoming Trump administration threatens more near-term inflation risk."
The futures market's predicted odds of a 25 basis-points rate cut to 4.38% at this Wednesday's Fed meeting rose above 97% on Monday, up from just 2-in-3 one month ago, according to derivatives exchange the
CME's FedWatch tool.
Further ahead, market consensus suggests that Fed rates will finish 2025 at 3.86%, more than half a point higher than the level forecast in early October but below the 4.00% level forecast in late November,
when gold prices fell following 'fiscal hawk' Scott Bessent being tipped for US Treasury Secretary by President-Elect Donald Trump.
The last quarterly FOMC forecast in September indicated that Fed members expected the federal funds rate to be at 3.40% by the end of 2025, nearly half a point lower than the current market consensus.
"Yields are pricing in a Fed that is going to sit here for a little bit," says Rick Rieder, chief investment officer for global fixed income at asset management giant BlackRock.
Ten-year US Treasury yields – a benchmark rate for government, finance, and commercial borrowing costs – today edged 2 basis points lower from Friday's 3-week high after making a steep 28-basis-point increase across the week.
This pushed the 10-year yield above the rate offered by 3-month bills for the first time since 2022, snapping the "inverted yield curve" which history and many analysts say always precedes a US economic recession.
This shift has followed the worst week for the benchmark 10-year's bond price since October 2023, driven by
weak demand among investors at an auction of new 30-year debt last Thursday.
"In my mind, the Fed need to stay in restrictive territory all the way until it's clear that inflation is back at their target," says Tara Sinclair, a former Treasury Department economist now teaching at George Washington University, now forecasting that the Fed will pause rate changes after this week's December cut and then hold interest rates steady all through 2025.
Gold priced in Euros meantime rose 0.7% to €2538 per Troy ounce on Monday as borrowing costs for the French government rose to their highest in over two weeks after ratings agency Moody's made an unscheduled review and cut the No.2 Eurozone economy's credit grade to Aa3 from Aa2 despite President Emmanuel Macron appointing veteran centrist politician and long-time ally François Bayrou as his 4th prime minister this year.
Today's move pushed the gap between French and German yields – a gauge of the extra return investors demand for holding French debt – up to 80 basis points, the widest highest since 5 December.
Germany's Chancellor Olaf Scholz was meantime expected to lose a confidence vote today, potentially triggering fresh elections.
European stock markets fell on Monday following declines in Asian markets after new data showed weaker-than-expected consumer spending during November in China, where policymakers last week announced
Beijing's strongest monetary stimulus since 2011, set for implementation next year.
Bullion prices on the Shanghai Gold Exchange fell 1% to ¥618 per gram and continued to show a $16-per-ounce discount to London prices on Monday – almost double the typical premium – amid worsening signs of
demand destruction in gold's largest consumer market, driven by a 30% price rise in the local currency this year.
London
prices for silver, which finds almost 60% of its demand as an industrial metal, was up 0.3% to $30.67 per ounce, recovering one-sixth of last week's decline.
This week, other interest-rate decisions are due from Japan, the UK, Norway, Sweden and Mexico.
The UK gold price in Pounds per ounce today edged 0.4% higher to £2106.
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