Gold prices rebound from Fed-driven rout, hawkish comments cloud outlook

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Investing.com– Gold prices rebounded from a one-month low on Thursday as the Federal Reserve lowered interest rates as expected, although the central bank’s hawkish stance on future rate cuts clouded the outlook for bullion.

Gold prices had dropped more than 2% overnight after the Fed’s policy meeting indicated fewer rate cuts in 2025, as sticky inflation remained a major concern.

Spot gold jumped as much as 1.3% to $2,618.11, while gold futures expiring in February dropped 1.2% to $2,620.79 an ounce by 22:51 ET (03:51 GMT). 

Spot gold rebounds, but outlook dim amid slower rate cuts

The Fed reduced interest rates by 25 basis points but signaled it will adopt a slower pace for future cuts.

Lower interest rates bode well for gold prices as the opportunity cost of holding gold decreases, making it more attractive compared to interest-bearing assets like bonds.

However, gold futures fell sharply as the rates are expected to remain higher for a longer period after Wednesday's cut. Markets have ruled out chances of a cut in January and now expect just two more cuts in 2025, against their earlier expectations of four.

Fed Chair Jerome Powell said further reductions depend on progress in curbing persistent inflation, reflecting policymakers' adjustments to potential economic shifts under the incoming Donald Trump administration.

The Federal Reserve's hawkish stance was aimed at curbing inflation, but it also signals confidence in the resilience of the U.S. economy. This risk-on sentiment can reduce the demand for safe-haven assets, further dampening bullion’s prospects. 

With fewer cuts expected in 2025, the dollar is expected to strengthen further. The greenback surged to an over two-year high on Wednesday.

Additionally, the Bank of Japan maintained its interest rates on Thursday, as policymakers remained cautious over Japan’s economic outlook and the path of inflation.

Among other precious metals, Platinum Futures rose 0.7% to $928.90 an ounce, while Silver Futuresslumped 2.7% to $29.922 an ounce.

Copper falls on as dollar hits 2-yr high

Among industrial metals, copper prices extended declines on Thursday after the Fed’s hawkish stance bolstered the dollar. The red metal took limited support from reports of more fiscal spending in top importer China over the coming year.

The US Dollar Index rose 0.1% in Asian trade on Thursday and was at an over two-year high after the Fed meeting.

Benchmark Copper Futures on the London Metal Exchange fell 1.4% to $8,921.50 a ton, while one-month Copper Futures were largely unchanged at $4.089 a pound.