Gold Rises, Fed Getting Softer?
Gold prices traded around $4,270 per troy ounce on Friday, approaching a seven-week high and poised to close the week with gains. This increase was driven by expectations that the Fed will continue to ease monetary policy for some time to come. For the market, gold is once again being viewed as a safe haven when interest rates are expected to fall.
One of the main drivers of positive sentiment towards gold is signs of a weakening US labor market. Jobless claims for the week ending December 6 rose more than expected and reached their highest level in more than two months. This data reinforces the view that the US economy is starting to slow, giving the Fed more room to cut interest rates without fear of economic overheating.
Previously, the Fed had cut interest rates by 25 basis points for the third time this year. Interestingly, the central bank's tone this time was not as hawkish as the market had feared. Fed Chairman Jerome Powell signaled that the possibility of additional interest rate hikes was practically "off the table." This means the market focus has now shifted from "will the Fed raise again" to "how quickly and by how much the Fed will cut rates going forward."
On paper, the Fed's official projections only suggest one rate cut in 2026. However, market participants are not entirely in agreement. Based on money market prices, traders are actually pricing in the possibility of two cuts that year. This difference in perception creates considerable room for speculation, and gold is one of the assets that benefits, as it is sensitive to the direction of interest rates and bond yields.
At the same time, the Fed also announced it would purchase approximately $40 billion in short-term Treasury bills to ease pressures in the money market. This move is expected to keep short-term yields from rising too high, further supporting gold as a non-yielding asset. The combination of falling interest rates, subdued short yields, and subtle concerns about an economic slowdown keep gold comfortably in bullish territory, while the dollar has the potential to gradually weaken, and other precious metals like silver could also enjoy an influx of buying interest if the "low rate, high liquidity" sentiment persists. (asd)
Source: Newsmaker.id
