Gold has had an exceptional week, with futures soaring nearly US$100 per troy ounce across just three trading sessions. This impressive climb comes as fresh inflation data grabs the attention of financial markets and policymakers at the Federal Reserve.
The CPI report revealed a 2.7% annual increase for November, a slight rise compared to previous months. Core inflation, which excludes volatile sectors like food and energy, grew by 3.3% on an annualised basis.
Federal Chair Jerome Powell reflected on the progress made since inflation peaked above 8.5% back in March 2022. While acknowledging the strides taken, Powell noted that inflation remains a challenge, compounded by stronger-than-expected growth. The Fed’s goal of bringing inflation back to its 2% target is a priority, though achieving that is proving to be no small task.
Projections suggest the Fed funds rate may stabilise between 3.25% and 3.5% in the coming year. Recent rate cuts, totalling 75 basis points, include a notable 50-basis-point reduction followed by a smaller 25-basis-point cut.
Market chatter around further easing remains strong. Data from the CME FedWatch tool now indicates a 98.6% likelihood of another 25-basis-point rate cut at the upcoming FOMC meeting, a sharp increase in confidence from just weeks ago. However, with inflationary pressures lingering, the pace of future rate cuts could slow. This leaves the Federal Reserve balancing the tricky task of managing inflation while supporting economic growth.
For gold, these dynamics have been especially favourable. Lower interest rates tend to make fixed-income investments like government bonds less attractive, which often boosts demand for precious metals. This week’s surge, with gold futures reaching $2,753.20 per troy ounce, highlights how sensitive the metal is to monetary policy shifts and inflation trends.
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