On Tuesday, December 10th, gold prices reached a new high as geopolitical tensions escalated and expectations of a third rate cut by the Federal Reserve next week provided support. At the same time, the market is keeping an eye on the US inflation data due on Wednesday.
In the early hours of Tuesday morning on the US East Coast, spot gold rose by 1.1% to $2,687.69 per ounce, later peaking at $2,694, nearing the $2,700 mark. US gold futures also rose by 1% to $2,712.10 per ounce.
Peter Grant, Vice President and Senior Metals Strategist at Zaner Metals, stated that concerns over heightened tensions in the Middle East are boosting safe-haven buying. He also pointed out the renewed focus on the global trend of monetary easing, with expectations of rate cuts by the central banks of Canada, the Eurozone, and Switzerland later this week, as well as a likely rate cut by the Federal Reserve next week.
According to a survey by the National Federation of Independent Business, US economic data released that day showed an increase in optimism among small businesses towards the economy. However, traders are still watching the US inflation data closely.
The US Consumer Price Index (CPI) is set to be released on Wednesday, with expectations of a 0.3% increase in November. The Producer Price Index (PPI) will also be published on Thursday, and these two data points are crucial for the Federal Reserve’s rate cut decision.
Forex.com market analyst Fawad Razaqzada stated that the impact of the CPI data on gold is limited, particularly if the data aligns with expectations. A strong CPI report could further reduce the likelihood of a rate cut early next year.
As of now, the US has cut interest rates twice this year. Traders predict an 86% likelihood of a further 25 basis point cut by the Federal Reserve at the meeting on December 17th-18th, according to the FedWatch tool from the Chicago Mercantile Exchange.
During times of economic and geopolitical turmoil, gold is seen as a safe investment and tends to be favored in low-interest rate environments.
Razaqzada added that any significant news should boost gold prices, especially with increasing demand for gift jewelry in China, the largest consumer, particularly leading up to the Chinese New Year.
Spot silver rose by 0.6% to $32.00 per ounce, while platinum fell by 0.4% to $935.55 per ounce and palladium dropped by 0.6% to $968.00 per ounce.
Gold prices have risen by approximately 30% so far this year. On Monday, gold prices surged significantly due to various factors including geopolitical tensions in the Middle East and Korea, as well as optimistic expectations of Chinese demand. In April, the People’s Bank of China ended an 18-month gold buying spree but increased its holdings by another 5 tons in November.
The latest report from the World Gold Council (WGC) shows that gold purchases by central banks worldwide surged to 60 tons in October, with the Reserve Bank of India (RBI) being a major player by adding 27 tons of gold. The total gold purchases from January to October this year amounted to 77 tons.