The price of gold fell 0.7% after reaching its highest level since November 6, 2024 yesterday. The pullback was caused by profit-taking and the renewed growth of the US currency. The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.10% to 109.03.
Meanwhile, the precious metal is preparing to record its third consecutive weekly increase, as US inflation data and statements by Fed policymakers have reinforced the likelihood that the Fed may cut interest rates more than once this year. Persistent uncertainties surrounding 2025 further bolstered the metal's appeal.
After the release of CPI data for December, market participants revised their expectations regarding Fed policy and are now pricing in nearly even odds of two cuts by year-end. Meanwhile, Fed Governor Christopher Waller said three or four rate cuts are still possible if economic data weakens further. According to the CME FedWatch Tool, markets see a 2.7% probability of a 0.25% rate cut in January (compared to 3.2% a week ago), while the probability of an additional rate cut in March is 31.1%. Gold is considered an inflation hedge, while lower rates boost the non-yielding asset's allure.
The next catalyst for gold will be Donald Trump's policy, which could boost inflation and make it more difficult for the Fed to lower interest rates.