Gold steadies in holiday lull as markets eye 2025

Gold prices steadied in holiday-thinned trade as investors looked ahead to the US Federal Reserve’s interest rate strategy and President-elect Donald Trump’s tariff policies that could shape the metal’s trajectory next year.

Spot gold was little changed at $2,616.31 per ounce, as of 9:27 a.m. ET (1426 GMT). US gold futures were steady at $2,631.60.

“The current sideways trend appears to be primarily driven by the low liquidity environment,” said Zain Vawda, market analyst at MarketPulse by OANDA.

Gold had a stellar year in 2024, poised for its best performance since 2010 with a 27% gain.

“A similar rally could occur in 2025, but this will largely hinge on geopolitical developments,” Vawda added. “Without unexpected geopolitical disruptions, the base case projects gold prices around $2,800/oz, driven by persistent risks and trade war concerns.” Bullion is considered a safe investment during economic and geopolitical turmoil.

Analysts had predicted that successive record highs in 2024 would set the stage for a similar rally in 2025, fueled by sustained central bank buying, rising geopolitical tensions, and Fed rate cuts.

However, the momentum began to wane in early November as the dollar strengthened amid “Trump euphoria”, denting gold’s rally.

With Trump set to return to the White House in January, US investors are bracing for significant policy shifts in 2025, including higher trade tariffs, deregulation, and tax changes, all of which could have inflationary implications.

“If (tariffs are) borne out, this would give less room for the US Fed to continue cutting interest rates, and we’ve seen the market already scaling back expectations on that front for 2025,” said Frank Watson, precious metals analyst at Kinesis Money.

While the Fed aggressively cut rates in September, November, and December, it has signaled fewer cuts in 2025 due to stubbornly high inflation.

Higher rates increase the opportunity cost of holding the non-yielding bullion.

Spot silver was unchanged at $29.66 per ounce, platinum rose 0.2% to $941.25, while palladium gained 0.9% to $938.20.

US Treasury yields rose on Tuesday and 10-year yields reached the highest since May ahead of a Treasury sale of $70 billion in five-year notes and as traders evaluated the likelihood the Fed will cut interest rates next year given high inflation.

Tuesday’s five-year note auction is the second sale of $183 billion in coupon-bearing supply this week. The US government saw solid demand for a $69 billion auction of two-year notes on Monday and will also sell $44 billion in seven-year notes on Thursday.

Volumes are low this week before Wednesday’s Christmas Day holiday and next week’s New Year’s Day holiday. The bond market will be closed on both days and also closes early at 14:00 EST on Tuesday.

Yields have risen in recent weeks on concerns that inflation will persist above the Federal Reserve’s 2% annual target next year and impede the US central bank’s ability to continue cutting rates.

This is despite a decline in economic surprises, which measures the difference between official economic results and forecasts and typically moves in line with yields.

“The increasing divergence between Treasury yields and the performance of the economic data speaks to the market’s willingness to overlook the recent weakness as the risks posed by 2025 quickly approach on the horizon,” Ian Lyngen, head of US rates strategy at BMO Capital Markets, said in a note on Tuesday.

“Nevertheless, 10-year rates could be due for a correction to a lower plateau if the disappointment theme persists during the balance of 2024’s data cycle,” he said.

Yields jumped after Fed policymakers last week increased their inflation expectations for 2025, and reduced their rate cut forecast to 50 basis points, from 100 basis points.

The Fed cut interest rates by 25 basis points as was expected, but Fed Chair Jerome Powell said more reductions in borrowing costs hinge on further progress in lowering inflation.

President-elect Donald Trump is expected to implement more tariffs on trading partners when he takes office next year, which analysts say could lead to higher inflation.

Benchmark 10-year note yields were up 1.8 basis points at 4.617%, the highest since May 30.

Two-year note yields, which are highly sensitive to Fed interest-rate policy, rose 0.1 basis points to 4.351.

Five-year note yields reached 4.465%, the highest since June 11.