Gold Records Worst Week In Over Three Years Amid Strong Dollar And Rate Cut Bets

Gold prices experienced their sharpest weekly decline in over three years, with the metal trading near a two-month low. Gold's spot price dropped 4.5% for the week in the United States as traders reassessed monetary policy expectations on the back of economic data and the US Fed Chair's comments on economic outlook.

In the country's swaps market on Friday, traders temporarily reduced their likelihood of a quarter-point Federal Reserve interest rate cut in December to 50%, down from last week's 80%, according to data from Bloomberg. This came after the country's retail sales data were shown to include heavy upward revisions.

The country's policy-sensitive 10-year Treasury yield also topped 4.5% for the first time in nearly six months as Fed Chair Jerome Powell implied that the central bank was in no rush to cut rates, given the country's 'remarkably good' economic performance.

His comments aligned with a cautious approach recently advocated by other central bank officials, emphasising gradual adjustments rather than immediate cuts.

Notably, the lowering of lending rates augurs well for gold. The metal's bull run in September and October was powered by the 50 basis points rate cut announced by the Fed in September, and its indication towards more rate cuts in the months to come.

But gold prices have now declined for seven days in a row amid the Fed Chair's cautious approach and rising bond yields, reversing a period of bullish momentum.

Gold now trades around $2,563.25 per troy ounce, and has dropped about 7% from the record high it hit on Oct. 31. Losses in the metal's spot prices picked up last week after Donald Trump's election victory.

Additionally, a stronger US dollar has contributed to gold's decline. The Dollar Index has reached a one-year high this week, breaching the 107-level, supported by expectations of economic growth under the new Trump administration. A strengthening dollar usually makes commodities priced in the greenback, including gold, more expensive for international buyers.

Despite this week's rout, gold prices remain up by over 24% for the year, fueled by central banks' purchases of gold and continued geopolitical uncertainties. These factors underscored gold's appeal as a haven asset.

In India, gold prices plunged to Rs 74,750 yesterday. The prices, according to India Bullion Association, had last slipped to the Rs 74,000 mark on Sept. 20. They had held above the Rs 75,000 level since Oct. 9.

Traders and analysts now will be monitoring the US Federal Reserve's actions in the December meeting and economic data to assess gold's future trajectory.