Gold prices continued to rise on Tuesday, driven by China’s pledge, the largest gold consumer, to intensify its monetary stimulus policy to support economic growth. This support comes at a sensitive time as investors await US inflation data for clues about the possibility of a rate cut by the Federal Reserve.
In Monday’s trading, gold reached its highest level in two weeks, supported by the resumption of the Chinese central bank’s gold purchases after a six-month hiatus. The Chinese government announced plans to follow a more accommodative monetary policy next year. In addition, China will adopt a proactive fiscal policy aimed at stimulating economic growth further.
For his part, Kelvin Wong, senior market analyst at OANDA for the Asia-Pacific region, indicated that this shift in monetary policy represents a retreat from the cautious approach that has continued for nearly 14 years. He added that lowering interest rates in China would stimulate demand for gold further, which could lead to continued gains for the precious metal in the coming days.
Despite recent gains, investors are still awaiting upcoming US inflation data. This data could provide further clarity on the future monetary policy of the Federal Reserve. If the data shows a rise in inflation, it could lead to faster tightening of US monetary policy, which could negatively impact gold prices.
Conversely, if the data is weak, the Fed could keep interest rates low for longer, which would boost demand for gold as a safe haven. The market is also awaiting the effects of China’s ongoing stimulus on domestic demand for gold. The loose monetary policy could help boost consumption of the precious metal, especially given the high debt levels in some sectors of the Chinese economy. Therefore, prices could continue their upward trend if this momentum continues.
Gold Returns to the Forefront Amid Tensions Between the US and China
The safe-haven narrative has resurfaced after China announced an investigation into US artificial intelligence giant Nvidia. The investigation is focused on alleged antitrust violations, raising concerns about escalating economic tensions between the US and China. These moves suggest that there could be reciprocal measures between the two countries.
In this context, traders are awaiting the US inflation data for November, which will be released soon. These expectations come after the stronger-than-expected payrolls report last week. This report has boosted the chances of a rate cut by Federal Reserve at its next meeting. Looking at tool that tracks US interest rate expectations on the Investing Saudi platform, the chances of a quarter-point rate cut on December 18 are 89.5%.
At the same time, analysts expect the European Central Bank to also cut interest rates by a quarter-point at its next meeting on Thursday. In light of these expectations, gold tends to benefit from lower interest rates. This is because lower interest rates reduce the opportunity cost of holding the precious metal, as gold does not pay any interest compared to other assets.
These factors are considered supportive factors for the increased demand for gold, which is considered a safe haven during times of economic and political tensions. In addition to being a hedge against inflation, investors seek to buy gold in the face of low interest rates in order to protect their money from market volatility.
In conclusion, current analysis reflects the increasing factors affecting gold prices. Geopolitical tensions between United States and China, in addition to expectations of interest rate cuts in both the United States and the Eurozone, are likely to boost demand for gold. As investors seek to hedge against market risks, gold appears to continue to play a key role as a safe haven during difficult times.
Gold prices rise on expectations of interest rate cuts
Gold prices witnessed a significant increase during trading on Monday, as the yellow metal recorded its highest level since November 22. This increase came amid expectations that the Federal Reserve will cut interest rates at its next meeting. At the settlement of trading, gold futures prices for February 2025 delivery rose by 0.95%, or $25.9, to reach $2,685.50 per ounce, after the yellow metal touched the $2,700 level.
Spot gold and futures
As for spot gold, it also witnessed a rise of 0.35%, to reach $2,669 per ounce. While gold futures recorded a rise of 0.22%, recording $2,692. This price movement reflects the ongoing expectations of easing monetary policy by the US Central Bank, which enhances the attractiveness of gold as a safe investment tool.
US dollar movements
In contrast, the US dollar index stabilized at 105.83 points, indicating a relative balance in the currency markets. Dollar movements play a vital role in determining gold trends, as a rising dollar is often linked to a falling gold and vice versa. Hence, traders closely monitor any changes in dollar movements as a key indicator of the expected path of gold prices.
Other Metal Markets
In other metal markets, spot silver rose 0.6% to $31.98 per ounce, reflecting optimism in demand for silver. In contrast, other metals such as platinum and palladium witnessed a slight decline. Platinum fell 0.4% to $935.02, while palladium recorded a slight decline of 0.1% to $972.25.
Forward Outlook
Analysts expect gold to continue to benefit from the low interest rate policy in the United States, coupled with ongoing economic and geopolitical concerns. With expectations of a rate cut by the Federal Reserve on the horizon, gold may continue its upward trend, especially as investors seek safe havens amid uncertain economic conditions.
