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Gold Price +1.2% for the Week as US Fed Flips to Fearing Recession Over Inflation

The GOLD PRICE edged back Friday but held onto this week's rebound as the US Federal Reserve's sudden 'pivot' to projecting interest-rate cuts for 2024 and signalling that recession is now a greater concern than inflation was followed by mixed economic data.
Rebounding by 1.2% in US Dollar terms from last Friday's 3pm benchmarking auction, the gold price today held $13 below 1st December's record weekly finish in London of $2045 per Troy ounce and $35 below the record daily PM fix of 6 August 2020.
Both the UK gold price in Pounds per ounce and in the gold price in Euro terms meantime rallied back to last weekend's levels at £1602 and €1867 respectively, jumping less than the Dollar price after the Bank of England and European Central Bank repeated their mantra of 'higher for longer' on Thursday, rather than signalling 2024 rate cuts like the US Federal Reserve did on Wednesday.
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Over 75% of betting on March 2024's interest-rate decision from the Fed now sees the US central bank starting to cut Dollar interest rates in 3 months' time, up from below 1-in-4 at this point in November. 
For 2024 as a whole, almost 2-in-3 positions now foresee 5 cuts or more by the end of next year, with the consensus bet pricing a December policy rate of 3.92% versus today's 2-decade high of 5.33%.
Compared to what the Fed itself now projects, and based on data from the CME derivatives exchange, only 1.6% of betting on December 2024 sees the Fed cutting rates 3 times next year to 4.60%, as per the median forecast of policymakers given in Wednesday's 'dot plot' release.
Chart of end-2024 Fed rate forecasts from the US central bank and the futures market vs. the Dollar gold price. Source: BullionVault
"Markets are guilty of confirmation bias and will look through data to achieve that," says strategist Nicky Shiels at Swiss bullion refining and finance group MKS Pamp.
"[But maybe] gold's move to new all-time highs on Dec 4th was a preview of this week's dovish pivot."
Presenting this week's policy announcement and 2024 forecasts on Wednesday, "We have seen real progress on [reducing] core inflation," said Fed chair Jerome Powell.
From here – and contrary to pundits warning that the Fed now risks repeating the "Burns' mistake" of the 1970s, cutting rates too soon and allowing inflation to rebound – "We are very focused on not making the mistake of keeping rates too high too long," Powell said, signalling that recession rather than inflation is now the US central bank's major concern.
While US retail sales beat forecasts for November on Thursday's data, and while the latest claims for jobless benefits came in below expectations, US industrial output failed to rebound as analysts forecast last month, new figures said Friday, with the decline in manufacturing activity deepening so far in December while the services sector is expanding a little faster according to the S&P data agency's preliminary PMI survey.
"The mixed US data didn't matter, the caution from other central banks didn't matter," says Shiels. "The Fed induced a 'pivot party' and thus triggered an overreach for all asset classes at the expense of the Dollar.
"Riskier [and] higher beta precious metals outperformed [with] palladium up 12%, platinum +3%, silver +6% vs gold +3%" from the eve of the US central bank's new 2024 outlook.
While trading volumes in both gold and silver Comex derivatives jumped by 16% on Thursday from the day before, volumes in Nymex platinum futures and options rose 36% – reaching the highest since at least June 2020 – and palladium trading leapt 2.3 times over.
Silver today dipped back with the gold price, briefly slipping below $24 per Troy ounce before reclaiming that level with a 1.8% weekly climb.
Platinum on Friday trimmed its jump to 3.5-month highs, dropping back $20 to $946 per Troy ounce while palladium prices held firm near $1150, more than 24.3% above last week's new 5-year low.
So-called crypto currency Bitcoin meantime fell further from last week's 21-month high, while global stock markets trimmed this week's surge, edging 0.1% below yesterday's fresh New Year 2022 highs on the MSCI World Index.
Looking ahead to 2024, "This is where gold plays both hands," Shiels at MKS concludes. "It's a hedge against a Fed-induced recession (that they see coming sooner) and a hedge against a Fed that hasn't won the inflation fight."

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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