In December, gold reached a record high of $2,135 before closing the month at $2,063, a 1.3% monthly increase.
The fluctuation in gold’s price was primarily influenced by speculation about the Federal Reserve’s (Fed) monetary policy and the potential speed of interest rate cuts amidst expectations of a weakening US economy in 2024 and a softening dollar.
The metal’s price spike was briefly sustained, but it retracted below $2,000, later regaining strength after the Fed hinted at a policy change in mid-December. Despite geopolitical tensions and upcoming elections in various regions, these factors had a muted impact on gold prices compared to central bank purchases and seasonal demand.
In Q4 2023, gold saw an 11.6% increase, contributing to a 13.1% rise over the year. The drop in real yields to 1.68% at the month’s end bolstered gold’s position as a safe-haven asset. Post-Fed announcement of a pivot to rate cuts, the market fully priced in a rate reduction for March 2024, with the Fed maintaining its policy rate at 5.5%.
Market expectations shifted, forecasting more rate cuts in 2024. This, coupled with the Fed’s revised projection of a lower Fed funds rate by year-end, led to a 2.1% monthly decline in the US dollar index (DXY). Despite a relatively stronger economic outlook in the US than in Europe and the UK, the market is more convinced of the Fed’s likelihood to cut rates first.
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