Gold Declines.. and Stocks Rise on Hopes of 'Interest Rate Cuts'

Gold prices fell on Tuesday from their highest level in over a week, as the dollar remained stable, while investors awaited a set of delayed U.S. economic data that could improve their expectations regarding future interest rate cuts by the Federal Reserve.

Spot gold prices dropped by 0.2% to $4,129.89 per ounce, after rising more than 2% in the previous session. Earlier in the day, prices had reached their highest level since November 14. Meanwhile, U.S. gold futures for December delivery rose by 0.8% to $4,126.60 per ounce.

The U.S. dollar index remained near its highest level in nearly six months, which limited the rise in bullion prices, as a strong dollar makes gold more expensive for holders of other currencies. Nitesh Shah, a commodity strategist at WisdomTree, stated, "We have seen a broad rise in asset prices, partly due to the markets reassessing the timing of upcoming interest rate cuts by the Federal Reserve." The gradual delay in data releases due to the government shutdown increases volatility, but the underlying market fragility still favors gold. Even today's decline appears to be a natural correction after prices rose so rapidly. The U.S. is set to release retail sales and producer price index data later. Both sets of data had been delayed due to the government shutdown, and this data is expected to give investors a clearer idea of the Federal Reserve's interest rate trajectory. Chicago Mercantile Exchange data showed that markets expect an 81% chance of a rate cut in December and an 86% chance of a move in January. Christopher Waller, a Federal Reserve governor, stated on Monday that the labor market has slowed enough to justify another quarter-point cut in December, although further steps will depend on incoming data.

His comments followed remarks by John Williams, president of the Federal Reserve Bank of New York, that interest rates could decline "in the near term." Lower interest rates tend to support non-yielding bullion. Shah added that in a realistic scenario, a structurally weak dollar could push gold prices to around $4,700 by 2026.

In other markets, spot silver prices fell by 0.5% to $51.13 per ounce, platinum remained stable at $1,543.46, and palladium lost 1.1% to $1,380.00. Precious metals analysts at the investment site noted that gold could extend its gains as traders factor in renewed expectations that the U.S. Federal Reserve will cut interest rates in December. Caution ahead of a series of key U.S. economic data has bolstered demand for safe havens, with gold rising even as the dollar remains strong. Broader metal prices also increased. Expectations for a rate cut in December rose after cautious remarks from the Federal Reserve. Markets have seen an increase in expectations for a rate cut in December during recent sessions, especially after two Federal Reserve officials indicated their support for easing monetary policy next month. Markets estimate a 77.2% chance of a 25 basis point rate cut by the Federal Reserve during its meeting on December 9-10, a sharp increase from the 41.8% recorded last week. The prospect of a rate cut bodes well for non-yielding assets like gold, as it reduces the attractiveness of investing in debt instruments. The yellow metal has recorded a series of record highs this year as the Federal Reserve cut interest rates during its last two meetings.

Increasing tensions between China and Japan have also boosted demand for gold as a safe haven, while concerns about dwindling fiscal spending in the developed world persist.

Movements in metal prices have also been limited due to anticipation of key U.S. economic readings in the coming days. Although this data is for September, it is likely to be the most recent data released by the Federal Reserve before its December meeting. Producer price index and retail sales data are scheduled to be released later on Tuesday, while personal consumption expenditures price index data, the Federal Reserve's preferred inflation measure, is set for release on Wednesday. Government officials have indicated that it is unlikely that inflation and employment data for October will be released due to the prolonged government shutdown. This belief has reinforced previous expectations of the Federal Reserve holding interest rates steady in December, as the central bank will remain vigilant in its last meeting of the year.

Stock Market Rise: Global stocks rose on Tuesday after Federal Reserve officials bolstered expectations for a rate cut in December, prompting investors to invest in technology stocks, ignoring concerns about sector inflation.

Alphabet, Google's parent company, is nearing a valuation of $4 trillion, becoming only the fourth company to reach this level, reflecting investors' belief in the continued tech boom driven by artificial intelligence. The MSCI World Index rose for the third consecutive day, surpassing the two-month lows it hit last week, with European stocks rising slightly by 0.2%, and U.S. stock futures approaching positive territory.

The yield on the benchmark 10-year Treasury bond remained at 4.036%. The yield on the two-year bond, which fell with traders' expectations of a Federal Reserve rate cut, stood at 3.49% in Europe, after declining by 2.5 basis points in the previous session.

The likelihood of U.S. rate cuts is increasing after Christopher Waller, a Federal Reserve governor, stated that available data indicates that the U.S. labor market remains weak enough to justify another quarter-point cut. His comments followed remarks by John Williams, president of the Federal Reserve Bank of New York, who indicated late Friday the possibility of a rate cut in December.

Market estimates indicate an 81% chance of a quarter-point rate cut next month, according to the CME FedWatch tool, up from 42.4% a week ago. The U.S. central bank will meet on December 9-10.

Later on Tuesday, investors will be able to review delayed data on retail sales, wholesale price inflation, home prices, and consumer confidence, although this data may not significantly impact their expectations regarding what the Federal Reserve may decide next month.

The shift in interest rate expectations over the past week has bolstered stocks, but its impact on the dollar has been limited. So far this month, the dollar has risen against all major currencies except the offshore Chinese yuan, which has risen by about 0.5%.

Michael Brown, senior research strategist at Pepperstone, stated, "This indicates, in my opinion, that the foreign exchange market still relies on growth differentials more than anything else, and with the U.S. economy currently outperforming its peers, and the likelihood of continuing to do so until 2026, this bodes well for the dollar in the future."

U.S. stocks closed higher overall, with the Dow Jones Industrial Average rising by four-tenths of a percent, and the S&P 500 adding about one and a half percent.

Notable events included the rise of the dollar against the Japanese yen, which hovers around its weakest levels in ten months, raising concerns among Tokyo officials about the need for intervention to support it. The dollar fell by 0.3% during the day to 156.47, after rising by 1.6% in November. The euro rose by 0.1% to $1.1531.