Gold gains as Fed rate cut bets boost appeal

Gold prices gained in holiday-shortened trade on Tuesday, as the US dollar and bond yields fell on rising expectations that the Federal Reserve may lower interest rates as early as March of next year.

As of 0401 GMT, spot gold was up 0.5 per cent at $2,063.78 per ounce, having achieved a more than two-week high of $2,070.39 the previous session. Gold futures in the United States climbed 0.3 per cent to $2,074.90 per ounce.

“Gold prices have resumed their upside into the new week, after receiving the go-ahead from softer-than-expected U.S. personal consumption expenditure data last Friday, which validates the dovish rate expectations priced by markets,” IG market strategist Yeap Jun Rong said.

“As long as the trend in economic data remains, gold prices may eye another break of the upper consolidation range at the $2,080 level ahead,” Yeap added.

According to data released on Friday, US prices declined in November for the first time in more than three and a half years, putting the annual increase in inflation below 3 per cent.

Lower interest rates reduce the opportunity cost of investing in non-yielding bullion.

According to the CME FedWatch tool, traders are now pricing in an 89 per cent possibility of a rate drop by the US central bank in March.

The dollar index lost 0.1 per cent, making gold more appealing to other currency investors, while the benchmark 10-year US bond yield fell to 3.8838 percent.

Meanwhile, the US military carried out retaliatory precision air attacks in Iraq after an earlier one-way drone attack by Iran-aligned insurgents injured three US personnel.

Gold is seen as a safe-haven asset during times of geo-political uncertainty.

Markets in Australia, New Zealand, Hong Kong and the Euro Zone are closed on Tuesday for the Boxing Day public holiday.

Spot silver rose 0.8 per cent to $24.37 per ounce, while platinum gained 0.2 per cent to $972.85, and palladium climbed 0.6 per cent to $1,209.74.