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Gold Price Hits 3-Week Low as Markets 'Dial Back Fast' on Fed Rate Cut Bets

GOLD PRICES fell to 3-week lows on Monday and global stocks also slipped as the US Dollar and US bond yields steadied near their highest in a month as financial markets dialled back their rate-cut bets ahead of this week's US inflation data, writes Atsuko Whitehouse at BullionVault.
The US Dollar bullion price fell 1.3% to $2020 per ounce, the lowest since 18 December and 5.6% below gold's all-time high of $2143 hit at the start of December when traders re-priced a 2024 rate cut by the US Federal Reserve as early as March.
Interest-rate traders are now pricing in a 65% chance of the first cut coming that month, comparing to nearly 90% at the end of last year, according to the CME derivatives exchange's FedWatch tool.
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"2024 [has] kicked off with the market dialling back rate cut bets," says Nicky Shiels, head of metals strategy at Swiss refining and finance group MKS Pamp, and that has led to "[an] associated retracement in all rate sensitive assets from gold to US equities."
China's stock market today dropped near 5-year lows after shadow bank Zhongzhi filed for bankruptcy, while US equity futures slipped despite congressional leaders reaching an agreement on government spending levels for this fiscal year, widely seen as a big step towards avoiding a suspension of key services and payments later this month after a short-term deal averted a government shutdown in October.
The S&P500 lost 1.5% last week to break a 9-week winning stretch, its longest since 1989 according to Reuters. The gold price in US Dollars has now lost 1.6% from its record-high weekend close to 2023.
Chart of the S&P500 indes of US stocks vs. the Dollar gold price. Source: BullionVault
"The latest jobs report is the one piece of data we were missing to see markets show some moderation," said Florian Ielpo, head of macro at $225bn asset managers Lombard Odier, pointing to the stronger-than-expected US non-farm payrolls data published last Friday.
"The rate cut pricing went way ahead of itself, far beyond what the Fed was communicating."
While US policymakers last month forecast in the Fed's 'dot plots' that they will cut borrowing costs 3 times to 4.6% in 2024, traders in the Fed Funds futures markets last week bet on average that the Fed will cut rates 6 times or more this year, down as low as 3.75% by next Christmas.
That consensus forecast today rose to 4.00% as markets look ahead to Thursday's US consumer price inflation data.
Investors as a group meanwhile cut their holdings in giant gold-backed ETF the SPDR Gold Trust (NYSEArca: GLD) sharply last week, with the fund registering the biggest weekly liquidation since mid-August, down by almost 10 tonnes of bullion to reach its smallest size since early November.
The smaller iShares gold product (NYSEArca: IAU) also shrank last week, down by nearly 4 tonnes with its heaviest weekly outflow since the end of September to the smallest since April 2020.
Last week's liquidation came after the GLD and IAU gold ETFs grew together for the first month in 5 across December.
The Dollar index, a measure of the US currency's exchange-rate value versus its major peers, today edged higher after posting its biggest weekly rise since July, while 10-year US Treasury yields – a benchmark rate for government as well as many finance and commercial borrowing costs – also held near one-month highs, trading above 4% per annum as bond prices fell.
Gold priced in the UK Pound and the Euro fell towards 3-week lows of £1591 and €1847 on Monday, but bullion prices on the Shanghai Gold Exchange fixed at ¥482 per gram, just 0.1% off its all-time high.
That put gold prices in the precious metal's No.1 consumer market around $29 per Troy ounce above London quotes, slightly down to a 1-month low but well above the Shanghai premium's 5-year average of $5.60 after central bank the People's Bank of China limited the issuance of new gold import quotas in the face of strong household jewelry and investment demand.
Prices for silver, primarily an industrial metal, dropped 1.3% on Monday to $22.89 per ounce, while platinum, which finds two-thirds of its demand from industrial uses led by auto-catalysts, fell 0.9% to $954 per ounce.
Palladium – of which Russia is the No.1 miner – went down 1.5% to $1014 per ounce to touch its lowest since mid-December's 5-year trough.
Oil prices fell by more than 2% on Monday as Saudi Arabia made the largest price cut over a year because of rising supply and competition, even though there are supply concerns generated by escalating geopolitical tension in the Middle East.
US Secretary of State Antony Blinken held more talks with Arab leaders on Monday as part of a diplomatic push to stop the war in Gaza – where Israel now says it has neutralized the Hamas terrorist threat, at least in the north of the region – from spreading further.
Reuters reports that Israel has carried out an unprecedented wave of deadly strikes in Syria, while a senior leader from Iran-backed Hezbollah was killed today in Lebanon.

Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

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