Experts anticipate a rise in gold prices due to indications of a slowdown in American inflation, heralding the end of the monetary tightening cycle initiated by the Federal Reserve since March 2022. During this period, interest rates were raised from a range of 0.25% to 5.5%.
At the time of this report, the price of gold in spot transactions increased by 0.13% to $2022.39 per ounce, supported by investors awaiting inflation data from the United States set to be released later this week. Conversely, the price of gold futures for delivery in January fell by 0.12% to $2023.60 per ounce.
The decline in bond yields lowers the opportunity cost of holding bullion that does not yield a return. Gold, however, serves as a hedge against risks and can provide quick profits through speculation, which, in itself, is a factor that raises gold prices, particularly when demand surges against a lesser supply.
Adding to the upward pressure on gold prices is the escalation of geopolitical tensions in the Middle East and Israel's intensified actions in the Gaza Strip.
It is noteworthy that the American Consumer Price Index, one of the primary measures of inflation, dropped to 3.1% in November from 3.2% in October, according to the labor statistics bureau data.
Traders are anticipating a number of American economic data releases this week, including the Personal Consumption Expenditures Price Index report for November, the favored measure of inflation by the US central bank, to be released on Friday.
US Treasury Bonds
Yields for US Treasury bonds, with a three-year term, dropped to their lowest level in more than six months at 4.094% at the time of this report. Simultaneously, the yields for seven-year bonds fell to the lowest levels since last July at 3.924%, and ten-year bond yields decreased to 3.9%, the lowest since late July.
Reuters quoted Tim Water, a senior market analyst at "KCM Trade," saying, "Yields are in decline following last week's meeting of the Federal Open Market Committee, which paves the way for further increases in gold prices."
Last week, the Federal Reserve (the American central bank) maintained the interest rates unchanged at a range of 5.25%-5.5% in its final monetary policy meeting of the year.
The economic projections indicated that the historical tightening of American monetary policy had reached its end, and borrowing costs are expected to decrease in 2024.
