Precious metal prices remain volatile in the final weeks of the year as markets wrestle between global uncertainty and higher inflation/interest rates.
After climbing to $2,730.79 per ounce last week, gold has pulled back to the $2,650 range seen for much of the past few months. A higher than expected US PPI figure last week, and stronger retail sales in the US have both added to the expectation that the Federal Reserve will need to take a slower approach on interest rates in 2025.
Today’s FOMC meeting is still expected to result in a 25 basis point cut to US rates, but how much further the Fed can cut in 2025 is now the question for markets, and opinion is tilting towards the hawkish side. The US dollar index is up 0.4% in the past five days as markets adjust their expectations for US rates to remain higher for longer in 2025.
Inflation around the world also remains sticky. In the UK, figures released this morning showed inflation rose to 2.6% annually. Combined with strong wage growth, and the Bank of England is also expected to keep UK rates higher for longer in 2025. In GBP, gold has fallen back below £2,100 per ounce after climbing as high as £2,139.95 last week.
Increased uncertainty in Europe has seen the Euro fall closer to parity with the dollar this week. The currency is down 3.7% versus the dollar this year, and at $1.049 is at a 2-year low. After the chaos of the French government’s collapse, German Chancellor Olaf Scholz has lost a vote of no confidence, that leaves the German government facing elections in the New Year. Gold in Euros remains above €2,500 as a result of the weaker Euro, and if Germany faces political deadlock, the Euro could see further weakness that pushes it back below parity with the dollar.
Higher inflation and interest rates will likely continue to put pressure on gold and silver, but the general geopolitical uncertainty will limit how low they can go. Events in the Middle East remain volatile, while the killing of a Russian General by Ukraine could prompt further escalation in Europe. The collapse of two major European governments, the impeachment of the South Korean President, and the threat of a new global trade war when Donald Trump returns to the White House in January all highlight the uncertainty around the world that will continue to support precious metals prices in the year ahead.
