Investing.com — Gold prices hit a record high on Monday but later reversed some of those gains as traders bet on the possibility of a Federal Reserve rate cut next year.
At 07:26 ET (12:26 GMT), the price was largely unchanged at $2,071.29 per troy ounce, retreating slightly from an earlier rally that had lifted the typical safe haven to a record $2,135 per troy ounce . Gold posted a strong gain last week and also rose for the second month in a row in November.
The yellow metal has risen sharply in recent sessions as easing inflation, weak labor market data and less hawkish signals from the Fed have fueled speculation that the bank will cut borrowing costs from a more than two-decade peak in 2024.
Short-term demand for gold was also fueled by an attack on a US warship and commercial vessels in the Red Sea, raising concerns about an escalation of violence in the Middle East.
Speaking on Friday, Fed Chairman Jerome Powell reiterated his view that US interest rates will stay higher for longer. But some changes in his language — particularly the acknowledgment of progress made in curbing inflation and the potential for a “soft landing” for the U.S. economy — reinforced expectations that the Fed will no longer raise rates in December increase and may start decreasing it. March 2024.
More economic signals this week
shows a nearly 97% chance that the Fed will leave rates unchanged at a range of 5.25% to 5.50% when policymakers meet later this month. Meanwhile, there is a more than 50% probability that the central bank will cut rates by 25 basis points as early as March next year, down from around 21% a week ago.
The prospect of falling borrowing costs bodes well for gold, as higher interest rates drive up the opportunity cost of investing in non-interest-bearing assets like metal. This idea had a negative impact on precious metal prices last year.
But markets still have a slew of economic data to assess. data for November – a key gauge for the labor market – will be released later this week, while inflation figures for the rest of the year will also be published in the coming weeks.
Some facets of the labor market remain strong, while inflation is still well above the Fed’s 2% target – a trend that, if sustained, could reduce the chances of an early rate cut.
Ambar Warrick contributed to this report.
