Fed rate cuts and inflation concerns support gold
Gold’s modest gains came as the US dollar index fell from recent highs following Donald Trump’s victory in the US presidential election. A softer dollar makes gold more attractive to international buyers, providing some support for the metal. However, the long-term effects of the new government’s policies are uncertain. According to Ricardo Evangelista, senior analyst at ActivTrades, potential inflationary pressures from Trump’s economic agenda could push the Federal Reserve to maintain higher interest rates, limiting gold’s appeal due to its unprofitable nature.
“The long-term impact of the new administration’s trade policies could lead to higher inflation, potentially forcing the Fed to keep interest rates high for a longer period of time,” Evangelista said. “In such a scenario, non-performing assets such as gold would likely come under additional pressure.”
Treasury yields and the Fed’s interest rate path
U.S. Treasury yields showed little movement Thursday after a sharp post-election rally. The yield on ten-year government bonds rose by 2 basis points to 4.449%, while the yield on two-year government bonds fell by less than 1 basis point to 4.262%. Market focus remains squarely on the Fed, with widespread expectations of a 25 basis point rate cut, bringing the target range between 4.50% and 4.75%.
Market prices indicate another possible quarter-point cut in December, with an expected pause in January, followed by further cuts through 2025. This dovish outlook, if confirmed by Fed Chair Jerome Powell’s comments after the meeting, would could strengthen the appeal of gold as a hedge against climate change. long-term economic uncertainty.
Data releases highlight economic concerns
Investors will be closely watching additional economic data on Thursday, including weekly jobless claims and preliminary third-quarter productivity figures and unit labor costs. The market will also review September’s wholesale inventory data and consumer credit reports later in the session. Slower job growth and moderating productivity trends could support the Fed’s rate-cutting strategy, boosting demand for gold as a safe haven.
Market Forecast: Bullish Outlook for Gold Prices
With the Fed poised to initiate a gradual easing path and inflation risks looming, gold is expected to maintain its bullish momentum in the near term. UBS analyst Giovanni Staunovo predicts that a rate cut, combined with a slowing labor market, will likely support gold, predicting prices to reach $2,900 in the next twelve months. However, key technical levels around $2,666.25 and $2,697.28 could limit immediate gains. In the near term, the outlook for gold remains bullish, with room for gains if Fed policy reinforces lower interest rates and persistent inflationary pressures.