Gold prices are currently at $2,670 per ounce, down slightly from $2,680 at the start of last week.
While the Producer Price Index (PPI) came in hotter than expected last week—indicating persistent inflation—it was not high enough to alter predictions of a Federal Reserve rate decrease scheduled for later this week. The PPI often serves as a leading indicator of inflation, as higher producer costs can be passed on to consumers. The Federal Reserve (FOMC) will announce its interest rate decision at 2:00 PM EST on Wednesday, December 18th. According to the CME Group, there is a 97% chance of a 25 basis point reduction in the federal funds rate.
This week's most significant market-moving event will be Jerome Powell's speech at 2:30 PM EST, following the interest rate announcement. Goldman Sachs predicts that broad tariffs proposed by Donald J. Trump for his second presidential term could increase inflation by 1%. Meanwhile, Bank of America forecasts only two Federal Reserve rate cuts in 2025, whereas Wells Fargo projects just one cut.
In 2024, gold prices rose nearly 30% year-to-date. At the beginning of the year, the Federal Reserve adopted a hawkish stance, projecting early and frequent rate cuts. However, persistent inflation delayed the first rate decrease until October. Despite this, gold experienced record price increases.
In the first half of 2024, gold's surge was driven by consistent net purchases by central banks, including China, and increased safe-haven demand amid regional wars in Ukraine and the Middle East. In the second half of 2024, the primary drivers of the market included escalating geopolitical tensions, particularly in the Middle East, and uncertainty surrounding the upcoming U.S. Presidential election. China resumed net central bank purchases in November after a six-month hiatus.
Globally, interest rates are easing outside the Federal Reserve's policies. Meanwhile, U.S. and international debt levels continue to rise, contributing to a favorable environment for gold. As we approach 2025, many factors, including inflation, geopolitical instability, and rising debt, are bolstering gold demand. For thousands of years, tangible precious metals like gold have provided stability and security, offering a reliable hedge in uncertain times.
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byUnited States Gold Bureau