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Gold's rapid descent: From $2,150 to under $2,000 in a week

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2023-12-12

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Just a week ago, gold futures were soaring at $2,150 per ounce, but by Monday's close, they had plummeted below $2,000, and further declines were anticipated as investors awaited the release of inflation data that evening and the Federal Reserve's statement and rate decision on Thursday morning.

Both inflation and the Federal Reserve's decisions, along with their commentary and the so-called dot plot indicating where Fed members foresee interest rates heading in the next one to two years, serve as short-term influences during weeks like this. Nevertheless, gold's sharp decline in just five trading sessions has been nothing short of remarkable.

Last Friday, gold settled at $2,014.50, but by Monday, it had dropped to $1,993.70 for February delivery, marking a significant decline of over $158 from the all-time high reached just a week ago, which exceeded $2,152 per ounce. It's worth noting that gold had closed at a record high of $2,089.70 on December 1, making the recent drop nearly $100 per ounce.

The reasons behind this rapid decline are multifaceted. Some attributed it to concerns of being overbought, a belief that U.S. inflation and interest rates were out of sync with reality, and a resurgence in the value of the U.S. dollar since late last week.

This decline will face further scrutiny with the release of November's Consumer Price Index tonight. Analysts are anticipating the report to reveal a drop in inflation to an annual rate of 3.0% from 3.2%, while the core rate, excluding food and energy, is expected to remain steady at 4%.

Additionally, the Federal Reserve's policy committee is set to announce its latest interest rate decision at the conclusion of its two-day meeting on Wednesday, with the market widely anticipating no change in rates.

Ahead of the data release, the U.S. dollar strengthened, pushing the ICE dollar index up by 0.08 points to 104.09. Consequently, the Australian dollar retreated below 66 U.S. cents, hovering around 65.60 U.S. cents as of 7:30 am on Tuesday, Sydney time.

Furthermore, Treasury yields, which had earlier hit session highs, retreated. The yield on the U.S. two-year note remained unchanged at 4.727%, while the 10-year note saw only a marginal increase of less than one basis point, although it had briefly surpassed 4.27% earlier in the session.

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