HG MARKETS:

Gold prices stabilized during Asian trading on Friday, recovering some of the steep losses from the prior session as a stronger U.S. dollar weighed on the yellow metal. The dollar’s strength was driven by anticipation of the Federal Reserve’s upcoming policy meeting, which supported the greenback. Despite this, gold retained a significant portion of its weekly gains, bolstered by safe-haven demand amid escalating geopolitical tensions in the Middle East and Asia.

Gold regained ground to trade near $2,690 during Friday’s Asian session, following support for gold also came from central bank purchases, notably by the People’s Bank of China (PBoC). After a six-month hiatus, the PBoC resumed gold acquisitions in November, raising its reserves to 72.96 million fine troy ounces. This action aligns with Beijing’s shift toward an “appropriately loose” monetary policy and its plans for a more proactive fiscal strategy in 2024.

Rising geopolitical tensions, particularly in the Middle East, are expected to sustain safe-haven demand for gold. According to Reuters, an Israeli airstrike in the central Gaza Strip on Thursday resulted in at least 66 fatalities, including 30 Palestinians sheltering in a post office, with 50 others wounded.

However, gold’s performance this week was tempered by a stronger dollar ahead of the Federal Reserve’s policy announcement. The Fed is widely expected to implement a 25 basis point rate cut, but markets are increasingly uncertain about the central bank’s long-term rate outlook. Persistent inflation, as reflected in this week’s U.S. economic data, has further clouded expectations.

Looking forward, the Fed is projected to reduce rates more cautiously in 2025, following a cumulative 75 basis points cut in 2024. Additionally, expansionary and inflationary policies under the incoming administration of President Donald Trump are anticipated to maintain higher interest rates over the long term. Elevated rates typically weigh on gold prices by increasing the opportunity cost of holding non-yielding assets. While gold reached record highs earlier this year amid the Fed’s rate-cutting cycle, the pace of its gains has noticeably slowed in recent months.