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Gold Prices Erase Big Spike to New All-Time Highs as Fed Rate-Cut Bets Retreat

GOLD PRICES spiked to fresh all-time highs in all major currencies except the Swiss Franc at the start of Asian trade Monday morning before erasing all that move and more as traders re-priced a rate cut by the US Federal Reserve as early as March 2024 following 'subtle' comments from the central bank's chairman Jerome Powell, writes Atsuko Whitehouse at BullionVault.
Gold priced in the US Dollar surged to a record $2143 per Troy ounce, almost $70 above the previous 'record gold high' briefly touched in May.
Wholesale bullion in Euro terms rocketed 3.5% above it prior high to reach €1967 and the UK gold price in Pounds per ounce touched £1685, some 1.6% above the peak set in the aftermath of Hamas' terrorist attack on southern Israel in early October.
The yellow metal then cut its overnight gains and fell further, trading back at $2025 per ounce, £1605 and €1870 even as new US data said factory orders sank in October, signalling a slower economy.
Chart of spot gold bullion price in US Dollars. Source: BullionVault
"Gold has simply become a proxy for a Fed rate cut expectations," says Nicky Shiels, head of metals strategy at Swiss refining and finance group MKS Pamp.
Lower interest rates reduce the opportunity cost of holding zero-yield gold, and betting on the Fed's 2024 policy meetings leapt Friday to put a near 2-in-3 shot on the central bank starting to cut its key rate from today's 2-decade high of 5.33% as early as March.
But that certainty fell back following gold's overnight spike Monday, dropping 5 whole percentage points to 58.4%, according to the FedWatch tool from derivatives exchange at CME.  
"The strong actions we have taken have moved our policy rate well into restrictive territory," said Fed chair Powell in a speech on Friday, a notable shift of tone from simply saying "restrictive" a few weeks before according to Jeffrey Roach, chief economist for $1.1 trillion broker-dealer LPL Financial.
"I think it's fair for markets to latch on to that subtlety."
With the Fed's last rates decision of 2023 due next week, Powell also noted on Friday that the core measure of Consumer Price inflation averaged 2.5% per year over the six months ending in October, near the Fed's 2% target.
Inflation on the Fed's preferred measure – the core Personal Consumption Expenditures index, which also strips out food and fuel costs – meantime slowed from 3.7% to 3.5% per year in October, new data said last week, in line with expectations.
"There's no evidence that we are stuck at 3% inflation," said Chicago Fed president and voting policymaker Austan Goolsbee on Friday, forecasting that the pace of increase in the cost of living will fall back to the Fed's 2% target.
But today's retreat in gold prices from Monday's new all-time highs came alongside a rebound in longer-term borrowing costs on the bond market, where 10-year US Treasury yields – a benchmark rate for government as well as many finance and commercial borrowing costs – edged higher to 4.25% per annum after dropping to the lowest since early September as Powell's comment coincided with worse-than-expected US manufacturing survey data.
That saw Western stock markets slip, with the tech-heavy Nasdaq index in New York losing 1% from Friday's 22-month high and contrasting with a further rise to new all-time highs for India's Sensex overnight and new 18-month highs for crypto 'currency' Bitcoin.
Despite an attack on US Navy and commercial ships in the Red Sea by Yemen's Iran-backed Houthi rebels on Sunday, oil prices extended last week's decline meanwhile amid doubt over global demand as well as over the latest decision on supply cuts from the Opec+ cartel of producer nations. 
The price of silver, primarily an industrial metal, rose as high as $25.88 per ounce as the gold price spiked – the highest since early May – before paring all those gains and falling further to $24.55. 
Gold prices inside China, the metal's No.1 consumer market, meantime fixed at a new all-time high of ¥480 per gram on Monday, but because that move was smaller than the jump in the global Dollar price of gold, it cut the premium offered to new imports – out of London, into Shanghai – sharply lower to $9 per ounce, back to its pre-Covid average.
That incentive for new imports rose as high as $121 per ounce this September as the Chinese central bank restricted gold inflows in the face of rising Chinese consumer demand by limiting the issue of new import licenses.
Gold prices in Japan also jumped early Monday to reach a fresh record of ¥10,083 per gram.

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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