Gold falls amid thin trade volumes; safe-haven demand may limit downside

Gold prices on COMEX fell on Monday as the market expects fewer interest rate cuts by the US Federal Reserve next year. 

Elevated interest rates eat into demand for the yellow metal as gold is a non-yielding asset, unlike bonds. 

The US Fed at its meeting in December indicated that the central bank may take a cautious approach next year with the US economy remaining resilient. 

Gold was muted on Monday after rising earlier in the session. Trade volumes remained low ahead of the New Year. 

At the time of writing, the February gold contract on COMEX was at $2,624.91 per ounce, down 0.3% from the previous close. 

Cautious Fed approach

At its meeting in December, the US central bank cut interest rates by 25 basis points in line with market expectations. 

The Fed has cut interest rates by a total of 100 bps in 2024 over the course of three meetings. 

The first cut was in September when the bank surprised the market with an oversized 50 bps cut.

In the following meetings in November and December, the Fed had administered a 25 bps cut each. 

Earlier this year, market participants were expecting the Fed to cut rates by a total of 150 bps.

However, a resilient labour market in the US and sticky inflation prompted the central bank to be more careful with cuts. 

“The Federal Reserve signaled a more cautious outlook for additional rate cuts in 2025, marking a shift in its monetary policy stance,” Akhtar Faruqui, analyst at FXstreet, said in a report. 

Next year, the market is expecting the bank to cut rates twice instead of earlier projections of four times. 

Geopolitical tensions

Gold could receive some support from rising safe-haven demand due to heightened geopolitical tensions. 

The prolonged conflict between Russia and Ukraine has kept the market on its toes as investors grew more risk-averse. 

Last week, Russia’s Federal Security Service said that it had thwarted multiple assassination plots by Ukraine targeting high-ranking Russian officers and their families in Moscow. 

Tension in the Middle East also remained high. 

On Sunday, Israeli forces carried out attacks on two hospitals in northern Gaza, including a strike on the upper floor of al-Wafaa Hospital in Gaza City, which killed at least seven people and critically wounded others. 

Gold’s impressive returns 

Gold prices were on course to end the year with 27% gains. This is the best annual return for the precious metal since 2010. 

At one point in October, gold prices were up more than 30% since the start of 2024. 

On COMEX, the gold prices had hit a series of record highs in 2024. It had hit $2,600 per ounce for the first time in September. 

In October, prices had climbed to $2,700 and then $2,800 as geopolitical tensions engulfed the Middle East, raising safe-haven demand among investors. 

For the rest of the session on Monday, the resistance for gold prices remains at $2,700, while the support is around $2,583.39.