Gold trimmed its losses following comments from a Federal Reserve official indicating a potential interest-rate cut in the near term. New York Fed President John Williams pointed out that the U.S. central bank has room to reduce rates as the labor market shows signs of weakening. In a speech delivered on Friday in Santiago, Chile, Williams noted that risks to employment have increased while those for inflation have diminished.
As a result of Williams’ remarks, bond yields declined and the U.S. dollar reduced its gains, providing support for gold. Swap traders are now estimating a 68% probability of a rate reduction in December, an increase from roughly 35% prior to his speech. Typically, lower interest rates are advantageous for gold since it does not yield any interest.
These comments arrived as Fed Chair Jerome Powell endeavors to secure a consensus among a divided group of policymakers ahead of their December 9-10 meeting in Washington. Following a second consecutive rate cut in October, several officials expressed either opposition to or uncertainty about endorsing a third consecutive cut in December.
Geopolitical tensions also contributed to the support for bullion. Leaders from Germany, France, and the UK, in a discussion with Ukrainian President Volodymyr Zelenskiy, emphasized the importance of maintaining Ukraine’s military capabilities in defending its sovereignty, rejecting pivotal aspects of a U.S.-Russia proposed plan to resolve the conflict. According to Reuters, the U.S. has threatened to halt its provision of intelligence and military support to Ukraine to compel acceptance of the proposed framework.
Despite a pullback from a record high reached last month, gold has appreciated over 50% this year and is on track for its strongest annual performance since 1979. This surge has been bolstered by inflows into exchange-traded funds and increases in central bank purchases. Analysts have noted that the rapid ascent in gold prices during the latter half of the year may have been overextended, influenced by a narrative of retreating from sovereign debt and currencies.
As of 11:01 a.m. in New York, gold fell 0.2% to $4,070.21 per ounce. The Bloomberg Dollar Spot Index showed a slight increase of 0.1%. Silver saw a decline of 1.9%, while platinum prices rose and palladium prices fell.
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