Gold Heads for a Weekly Decline as Expectations for Interest Rate Cuts Fade

Gold maintained its trajectory toward a weekly decline after mixed U.S. labor-market data reduced hopes for an interest rate cut in December. The precious metal fell to just above $4,050 per ounce, marking a 0.7% decline for the week. The latest employment report — the last one the Federal Reserve will see before its December 9–10 meeting — showed that U.S. job growth in September exceeded expectations, even though the unemployment rate rose.

“The jobs report has something for everyone, allowing both hawks and doves to retreat to their respective corners,” noted TD Securities analysts, including Oscar Muñoz, in a report.

Minutes from the Federal Open Market Committee’s October meeting, released on Wednesday, indicated that many Fed officials are inclined to keep interest rates steady. Swap traders are now pricing in only a 40% chance of a rate cut next month, compared with expectations two weeks earlier for a quarter-point reduction. Historically, gold tends to underperform when interest rates are higher.

Despite pulling back from last month’s record high, gold is up 55% this year and remains on track for its best annual return since 1979. The massive rally has been fueled by inflows into exchange-traded funds and central bank buying. Still, the latest gains — driven by the so-called debasement trade, a shift away from government bonds and currencies — may have become overstretched.

“The recent debasement-trade trend is based more on hope than reality,” said Carsten Menke, head of next-generation research at Julius Baer Group Ltd. He added that while this phenomenon remains a long-term driver for gold, given rising fiscal concerns among G-7 countries, some corrections and consolidation are justified.

Traders are also monitoring geopolitical developments after Ukrainian President Volodymyr Zelenskiy agreed to work on a peace plan drafted by the U.S. and Russia.

Source: Bloomberg Terminal