Gold extends gains after US data spurs Fed rate-cut prospects

Gold extends gains after US data spurs Fed rate-cut prospects

Gold prices gained on December 21 as US Treasury yields retreated after economic data fuelled expectations for the Federal Reserve to cut interest rates in March next year.

Spot gold was up 0.6% at $2,041.27 per ounce, as of 12:35 p.m. ET (1735 GMT). US gold futures rose 0.3% to $2,053.20.

Data showed US gross domestic product increased at a 4.9% annualized rate last quarter, revised down from the previously reported 5.2% pace, while weekly jobless claims increased slightly.

"GDP data came in a bit soft and gold charged up. Market is craving the burgeoning Fed pivot," said Tai Wong, a New York-based independent metals trader.

The market expects an 83% chance of a Fed rate cut by March, compared with 79% before the data, according to the CME FedWatch tool.

Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar and bond yields. Benchmark U.S. 10-year yields hit a near five-month low. [US/]

The Fed's dovish stance has caused markets to price in several rate cuts in 2024. However, some Fed officials have spoken out against imminent rate cuts.

Market focus has now shifted to the US core personal consumption expenditure (PCE) report on December 22.

"We do believe that gold will continue to maintain price levels above $2,000 and these expectations we have of lowering inflationary pressures will continue to foster the sideways to higher movement in gold," said David Meger, director of metals trading at High Ridge Futures.

In other metals, spot silver gained 0.6% to $24.28 per ounce, while platinum rose 0.4% to $962.39 and palladium was up 1.5% to $1,214.59.

"The fundamental backdrop is stronger for platinum and it should continue to outperform palladium going forward," BofA said in a research note dated December 20.

BofA expects rising palladium surpluses under its base case next year, with a possibility of prices falling to a low of $500 per ounce if there are no supply cuts.