Gold Holds Its Ground as Rate-Cut Expectations Offset US Dollar Strength
LONDON (December 19) Gold’s pullback in early trading is less a reversal than a pause, reflecting a market that is increasingly anchored to the direction of U.S. monetary policy rather than short-term currency moves. New York gold futures edged down about 0.2 percent to around $4,356 per troy ounce as the US dollar firmed modestly, with the US Dollar Index near 98.6, yet bullion still ended the week higher, up roughly 0.6 percent. The resilience matters. It signals that investors are treating dips as tactical adjustments rather than a reason to exit positions, following a softer-than-expected U.S. inflation print that reinforced expectations for Federal Reserve rate cuts in early 2026.
The immediate cause-and-effect chain is clear. Cooling inflation data reduced real yield expectations, which tends to support non-yielding assets such as gold, even when the dollar finds near-term support. Futures markets now reflect a meaningful probability of a rate cut as early as January, with an almost fully priced reduction by April. That shift has anchored demand for bullion despite intermittent pressure from currency moves. In this context, a firmer dollar has so far acted as a brake rather than a trigger for a broader correction, suggesting that monetary policy expectations are exerting the dominant influence.
Investor behavior across the precious metals complex reinforces this interpretation. Silver futures advanced about 1.1 percent to nearly $65.9 per ounce, while platinum rose around 1.2 percent to roughly $1,956. These gains indicate a broader appetite for precious metals exposure rather than a narrow, defensive bid for gold alone. While gold continues to function as a hedge against policy uncertainty and geopolitical risk, the parallel strength in silver and platinum points to positioning that anticipates easier financial conditions rather than acute stress.
From a strategic perspective, gold’s ability to hold elevated levels in the face of dollar strength reflects a market recalibrating its baseline assumptions. The base case is that gradually easing inflation allows the Federal Reserve to cut rates over the coming quarters, keeping real yields contained and supporting gold prices even if the dollar remains range-bound. Under that scenario, consolidation near current levels would be consistent with a market preparing for another leg higher as policy clarity improves.
The key risk scenario lies in inflation proving stickier than expected or financial conditions tightening unexpectedly, which could push rate-cut expectations further out and lift real yields. That would test gold’s resilience and likely deepen pullbacks beyond routine profit-taking. For now, investors will watch upcoming inflation releases and Fed communication for confirmation that the disinflation trend is intact. As long as the policy trajectory points toward easing, gold’s recent slip looks more like a tactical adjustment than a change in trend, leaving the broader bullish thesis largely intact.
Investing.com
