Gold News

Gold ETFs Shrink, Price Near 3-Week Lows as US Inflation Dents 2024 Fed Rate-Cut Bets

The GOLD PRICE slipped back towards last night's multi-week lows on Tuesday after gold-backed ETF investment funds shrank further and new US data said core inflation didn't slow in November.
That boosted bets that the Federal Reserve will project 'higher for longer' interest rates for 2024 in tomorrow's December policy statement and 'dot plot' forecasts, keeping gold at $1981 per Troy ounce – down 7.5% from last week's price spike to new all-time gold highs.
Headline consumer-price inflation in the USA last month edged down from 3.2% per year to 3.1%, matching June's 27-month low on the Bureau of Labor Statistics' first estimate.
But the 'core' cost of living in the world's largest economy – excluding volatile food and fuel – rose 0.3% month-on-month to put the underlying pace of inflation at 4.0% per year, unchanged from October's reading.
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"Gold tends to price in a rate cut or rate hike expectations prematurely, and the positioning may have got ahead of itself," says precious metals research director Suki Cooper at international bank and London bullion market maker Standard Chartered.
Today's inflation data saw betting jump that the US central bank under Jerome Powell won't start to cut interest rates in March 2024, rising from below just 50% of all positions in Fed Fund futures to more than 57% according to derivatives exchange the CME's FedWatch tool.
Chart of Fed Fund forecasts from CME futures positioning vs. gold priced in Dollars. Source: BullionVault
"Expectations that the Fed will start cutting rates," says a 2024 outlook from Dutch bank ING, "along with the expectation of a weaker US Dollar, should see gold investment demand return, following strong ETF outflows this year."
Friday last week saw gold-backed ETFs worldwide needing 7.5% less bullion to back their shares in issue than they did last New Year, with trust funds listed in Europe shrinking 10.7% in size, twice the pace of reduction in North American gold ETFs.
Giant gold-backed ETF the GLD shrank by 2 tonnes on Monday as bullion prices hit 3-week lows at $1976, while No.2 competitor the IAU held unchanged in size, also the smallest so far this month.
The giant silver-backed SLV ETF meantime shrank 0.1% in size as silver bullion yesterday neared 4-week low at $22.72 per Troy ounce.
Silver prices on Tuesday popped above $23 before edging back to $22.85, while the gold price in US Dollars lost $15 from spiking to $1996 on the release of November's CPI inflation data.
November saw gold ETPs as a whole lose a little under 11 tonnes of backing, says bullion market analyst Rhona O'Connell at brokerage StoneX, reflecting "a drop in the rate of attrition over the year as a whole, but still in the red column."
Interest-rate forecasts in the bond market meanwhile remain "far too benign, and the past year or so has certainly shown them to be discounting a softer tone from the Fed than has actually been the case."

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver, platinum and palladium 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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