Gold prices edged lower on Monday as the U.S. dollar gained strength and Treasury yields remained elevated, reflecting ongoing uncertainty over Federal Reserve monetary policy in 2025. The market's focus shifted to economic indicators and the potential impact of the incoming Trump administration's policies on financial markets.
Spot gold dipped 0.3% to $2,615.54 an ounce by mid-morning in New York, marking a continuation of last week's losses. U.S. gold futures settled 0.6% lower at $2,628.20. The Bloomberg Dollar Spot Index climbed 0.3%, with the dollar reaching a two-year high against its rivals, making the precious metal less attractive to holders of other currencies.
The retreat in gold prices came despite its robust performance earlier in the year. Gold has surged over 25% in 2024, buoyed by safe-haven demand, easing monetary policies, and significant central bank buying. However, the rally has tempered in recent weeks amid the dollar's resurgence and adjustments in Federal Reserve rate expectations.
"The market continues to digest the results of the Federal Open Market Committee (FOMC) meeting last week. A shallower rate path for 2025 is now getting factored in, probably a pause in January, maybe March as well," said Peter Grant, senior metals strategist at Zaner Metals. "While the Fed executed a 25-basis-point rate cut last week, it also signaled a more cautious path for 2025, which has recalibrated expectations and exerted pressure on gold."
The Fed's preferred inflation measure, released last Friday, indicated muted price pressures in November, a development welcomed by policymakers. Additionally, the Conference Board's consumer confidence index for December showed an unexpected decline, underscoring lingering economic uncertainty.
Lower interest rates generally favor gold, a non-yielding asset, by reducing the opportunity cost of holding it. Still, the Fed's indication of fewer rate reductions in 2025 has tempered market enthusiasm.
"The next big impact is the incoming presidency of Trump and the initial presidential decrees that he might declare. This has the potential to add to market volatility and be bullish for gold prices ," said Michael Langford, Chief Investment Officer at Scorpion Minerals.
