Gold Tests $2600 Floor as US Fed Halves 2025 Rate-Cut Forecast
Thursday, 12/19/2024 14:06
GOLD PRICES rallied weakly from a slump to 4-week lows beneath $2600 per Troy ounce in London trading on Thursday after the US Fed cut Dollar interest rates as expected but halved its forecast for the size of further rate cuts in 2025.
Stocks fell worldwide after the S&P500 lost over 2.9% on Wednesday's new Federal Reserve 'dot plot' forecasts.
That marked the US equity index's steepest 1-day plunge since
start-August's crash in Tokyo shares – also spurred by a change in monetary policy.
Having hiked its end-2025 forecast from 3.4% to 3.9% to match futures-market expectations on Wednesday, the Fed's policy committee today saw traders in the futures market hike their outlook further, with the consensus bet tracked by derivatives exchange the CME's FedWatch tool rising to 4.03% per annum for December next year.
That forecast stood at just 2.9% when gold prices crossed up through what was then a new record high of $2600 in mid-September.
With gold losing 2.4% for the week overnight in Dollar terms before rallying to $2604, silver fell 4.3% to hit its lowest price in more than 3 months at $29.20 per Troy ounce.
No.2 silver mining nation Chile on Tuesday cut its key interest rate by 0.25 points to 5% per annum, the lowest in almost 3 years, but Indonesia yesterday held at 6.0% as analysts expected.
Following the Fed's decision, Japan today held at a 2008 high of 0.25%, Taiwan held at 2.0% and Norway held at 4.5%, but the Philippines and Sweden both cut 1/4-point to 5.75% and 2.5% respectively.
The UK's Bank of England meantime held at 4.75% as widely expected, citing a rebound in inflation, strong services-sector pricing, an upturn wage growth and "the impact on growth and inflationary pressures from the [new Labour Government's] Autumn Budget, and from geopolitical tensions and trade policy uncertainty" as Donald Trump re-takes the White House in January 2025.
Market forecasts for yesterday's Fed rates decision came into 2024 at 3.8%. Gold prices then leapt to new all-time highs above $2300 even as end-year rate forecasts jumped above 5.0% in April, before swinging as low as 4.1% in September,
leading the Fed to change its own end-2024 rate forecast to match.
Gold prices then surged to their current all-time highs above $2700 even as market rate forecasts rallied towards yesterday's end-2024 outcome of 4.33% for the
effective Fed Funds rate until the January 2025 decision.
Only China's stock market escaped a fall on Thursday after yesterday's New York plunge, with the CSI300 index trading dead-flat as the Chinese Yuan sank to new 14-month lows against the Dollar on the FX market.
Tokyo's Nikkei 225 lost 0.7%, Frankfurt's Dax lost 0.9% and London's FTSE All-Share lost 1.0% as the Yen fell – holding the JPY price of gold above ¥13,000 per gram – but the Euro and the Pound both rose versus the US currency.
That saw the Euro price of gold drop back through €2500 per Troy ounce, near its lowest in 2 weeks, while the UK Pound price dipped through £2600.
Like today's Yen and Euro gold prices, that marked a new all-time high when first reached in mid-October.
Copper, wheat and crude oil prices retreated overnight as the Dollar rose to new 2-year highs on the FX market.
Most government bond markets dropped, driving up the cost of fiscal borrowing, but 12-month and 2-year US Treasury yields rose only to 3 week highs at 4.26% and 4.31% respectively.
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