December 18 (Reuters) – Gold prices dropped sharply on Wednesday, falling by more than 2% to reach their lowest level in one month. The decline came after the U.S. Federal Reserve (Fed) lowered interest rates as expected but indicated it would slow the pace of future rate cuts, which boosted both the U.S. dollar and bond yields.
Gold Hits One-Month Low
Spot gold decreased by 2.1%, trading at $2,589.91 per ounce by 3:56 p.m. EST (2056 GMT), marking its lowest point since November 18. Meanwhile, U.S. gold futures settled 0.3% lower at $2,653.30.
Fed’s Rate Cut Strategy
The Fed’s decision to slow its rate cuts in response to ongoing inflation concerns was central to the market reaction. “Markets are climbing a wall of worry into the close as Fed Chief Jerome Powell signals slower rate cuts, depending on further inflation progress,” said Tai Wong, an independent metals trader. He added, “Gold’s drop below $2,600 will concern some investors.”
The Federal Reserve’s updated projections show that two quarter-percentage-point rate cuts are expected next year, reflecting a cautious approach as inflation remains elevated. Fed Chairman Jerome Powell emphasized that policymakers need to see more improvement in inflation before making additional cuts.
Impact on the Dollar and Bond Yields
As the Fed signaled a slower pace of rate cuts, the U.S. dollar strengthened significantly, climbing over 1% to a two-year high. This made gold more expensive for holders of other currencies. Additionally, the U.S. 10-year Treasury yield reached a four-week high, further dampening the appeal of gold, which does not offer any yield.
Futures for the federal funds rate suggest that the Fed will likely keep its key overnight rate unchanged during the next policy meeting on January 28-29. Higher interest rates make non-yielding assets like gold less attractive.
Market Outlook
Looking ahead, traders are focused on upcoming U.S. GDP and inflation data, which could provide further insight into the Fed’s future monetary policy direction.
Despite the current slump, Peter Grant, Vice President and Senior Metals Strategist at Zaner Metals, remains optimistic. “I see the consolidation in gold as part of a larger uptrend, and I expect that trend to reassert itself in the first quarter of 2025,” Grant stated.
Decline Across Other Precious Metals
In other metals, silver dropped 3.5% to $29.45 per ounce, platinum fell 2% to $919.25, and palladium declined 3% to $906.88.
