Lagos — Gold has recently experienced a sharp pullback, dropping below $2,700 as the market reassesses risks.
This decline is largely driven by stronger-than-expected U.S. economic data and uncertainties about the pace of Fed rate cut path in early 2025. Despite the November CPI meeting expectations, the 3% year-over-year increase in the PPI has raised concerns that the inflation slowdown could be stalling. Coupled with strong retail sales, markets now expect the Fed to slow down its rate cuts, which has put pressure on gold.
With geopolitical tensions muted and key fundamental updates – such as China’s 2025 policy guidance and the final rate cuts from several major central banks – have been largely priced in, gold’s appeal as a safe haven has faded, contributing to its recent decline as well.
Given that the market has nearly fully priced in a 25 basis point cut at the upcoming FOMC meeting, unless there is an unexpected development, I believe gold will likely remain range-bound and fail to establish a strong trend in the near term.
Looking ahead to 2025, the key factors for gold will be U.S.-China trade relations and the resilience of the U.S. economy. If China’s economy weakens further, the yuan may be devalued, which may limit gold demand from the country. However, if U.S. growth slows due to rising inflation from tariffs or tough immigration policies, traders may turn to gold as a safe-haven, driving prices higher. In either case, gold’s role as a hedge against uncertainty and potential economic setbacks could benefit its price in the first quarter of 2025.
*Dilin Wu Research Strategist at Pepperstone
