Geopolitical Tensions and Dollar Weakness Drive Gold Demand
The recent surge in precious metals prices can be attributed not only to the weakening of the US dollar but also to the escalating geopolitical tensions. Investors are seeking the safe-haven appeal of precious metals amidst the uncertainty in global politics. The ongoing trade disputes and geopolitical conflicts have fueled this demand for gold.
Fed’s Dovish Stance and Potential Rate Cuts
Adding to the factors driving gold prices higher is the more dovish stance adopted by the Federal Reserve. In the recent FOMC meeting, Chairman Powell not only addressed the potential for rate cuts but also shared the Summary of Economic Projections (SEP). According to the SEP, Federal Reserve members anticipate a gradual reduction in interest rates over the next three years.
Upcoming Economic Reports
Investors eagerly await the release of several economic reports on Friday, December 22nd. These reports include data on GDP, PCI, and PCE. Of particular interest is the core PCE price index, which is expected to show a decline from 3.5% in October to 3.3% last month. The headline PCE is also anticipated to reveal a decrease, falling from 3% in October to 2.8% in the previous month.
Implications for Gold Prices
Should the actual numbers of the PCE price index align with the current forecasts, this would have a significantly positive impact on gold prices. Persistent declines in inflationary pressures would strengthen the likelihood of substantial rate cuts by the Federal Reserve in the coming year. Chairman Powell’s press conference suggested a possible three-quarters of a percent reduction in interest rates. However, many investors are even more optimistic, expecting the Fed to implement deeper cuts of 1 ¼%. The belief is that with five 25-basis point rate cuts, the Federal Reserve would steer the economy towards its target inflation rate of 2%.