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Gold prices experienced high volatility during Monday’s Asian trading session, rallying sharply to hit $2,135 per ounce before retreating nearly $70 to $2,065 in a matter of hours. The catalyst for the sudden price surge is unclear, although low liquidity and triggered stops likely played a role.
The recent gold price appreciation has been fueled by easing inflation, soft labor data, and less hawkish Fed signalling, leading traders to bet on interest rate cuts beginning in early 2024. Fed futures are currently pricing in a 97% chance rates remain unchanged in December and a 60% probability of a 25 basis point cut to 5-5.25% by March. Lower rates boost gold’s appeal by reducing its opportunity cost.
Geopolitical tensions, including an attack on an American warship in the Red Sea, also supported safe haven gold buying overnight.
Key upcoming risk events for gold include the November jobs report and upcoming inflation data. While parts of the economy remain robust, a persistent downtrend in inflation would likely cement trader convictions of an impending policy pivot.