(Bloomberg) — Gold tumbled after rising the most in 20 months last week, with traders ignoring a softer U.S. dollar and shifting their focus to the Federal Reserve’s upcoming interest rate decision.
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The precious metal fell almost 2%, falling below $2,700 an ounce, despite a decline in the US currency, which usually favors the commodity. Investors are now focused on the outlook for monetary policy after a report showed US business activity is growing at the fastest pace since April 2022. Swap traders see less than an equal chance that the central bank will cut rates next month. Higher financing costs tend to weigh on gold because it doesn’t pay interest.
The precious metal is still up more than a quarter this year, supported by central bank purchases and the Fed’s decision to cut rates. Port buying was also a feature, with prices rising 6% last week, following an escalation of the war between Russia and Ukraine. Most banks remain positive about the outlook, with Goldman Sachs Group Inc. and UBS Group AG will see further gains in 2025.
“Prices continue to reflect the trade-off between geopolitical risks and a less dovish Federal Reserve outlook,” said Jun Rong Yeap, market strategist at IG Asia Pte. “Any upside inflation surprise could tilt bets further towards a possible rate cut in December, with the prospects of a slower pace of rate cuts likely providing some resistance for gold prices.”
A slew of data this week could provide clues about the Fed’s likely interest rate path. This includes the minutes of the November central bank meeting, consumer confidence and data on personal consumption expenditure – the monetary authority’s preferred inflation gauge.
The dollar’s decline on Monday – which was accompanied by a drop in US bond yields – came after newly-elected US President Donald Trump nominated Scott Bessent to oversee the Treasury Department. Investors expect the hedge fund manager to prioritize economic and market stability over more radical measures.
Spot gold fell 1.6% to $2,673.94 an ounce as of 12:02 p.m. in Singapore, falling along with silver, platinum and palladium. The Bloomberg Dollar Spot Index fell 0.5%.
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