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Gold Prices Climb Amidst Fed Rate Cut Expectations

by Jennifer

In thin holiday trade on Tuesday, gold prices recorded an upward movement as the U.S. dollar and bond yields weakened. The market sentiment was influenced by increasing expectations of interest rate cuts by the Federal Reserve as early as March next year.

As of 0401 GMT, spot gold showed a 0.5% increase, reaching $2,063.78 per ounce, after reaching a more than two-week high of $2,070.39 in the previous session. U.S. gold futures also rose by 0.3%, reaching $2,074.90 per ounce.

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The positive momentum in gold prices was supported by softer-than-expected U.S. personal consumption expenditure data released last Friday, reinforcing the dovish rate expectations priced by markets, according to IG market strategist Yeap Jun Rong. He added that as long as the trend in economic data continues, gold prices may target another break of the upper consolidation range at the $2,080 level.

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The data released on Friday indicated a fall in U.S. prices in November for the first time in over 3-1/2 years, pushing the annual increase in inflation further below 3%. Lower interest rates, in turn, reduce the opportunity cost of holding non-yielding bullion.

Traders are currently pricing in an 89% chance of a rate cut by the U.S. central bank in March, according to the CME FedWatch tool. The weakening dollar index, which fell 0.1%, and the slightly lower benchmark U.S. 10-year bond yield at 3.8838% contributed to gold’s attractiveness for other currency holders.

Additionally, retaliatory precision air strikes carried out by the U.S. military in Iraq after a drone attack by Iran-aligned militants further heightened geopolitical uncertainty. Gold is traditionally considered a safe-haven asset during times of geopolitical instability.

It’s noteworthy that several markets, including those in Australia, New Zealand, Hong Kong, and the Euro Zone, are closed on Tuesday for the Boxing Day public holiday.

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