Following the Federal Reserve meeting last week, market confidence in an imminent interest rate cut has diminished from around 94% to about 70% for December. Officials affirmed that inflation remains high and they are prepared to raise interest rates if necessary. This rhetoric supports the dollar and reduces the attractiveness of holding gold, which does not generate returns, compared to dollar-denominated assets that do yield returns, putting pressure on precious metal prices.
Markets are watching the “US Dollar Index DXY,” as a strong break above the 100 level would be seen as a sign of continued strength in the US currency, likely leading to further weakness for gold. Physical demand is also taking an additional hit from a “new tax policy in China that removes some exemptions on gold purchases, which may temporarily reduce consumer demand.” (market pulse)
