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• Gold prices fell on Friday as a stronger dollar and rise in yields weighed on market sentiments.
• The US Fed is likely to cut interest rates by 25 basis points at its policy meeting next week.
• Commerzbank AG believes that the recent rally in prices may not not continue as prices run out of steam.

Gold prices have once again pared gains to fall in bear territory on Friday for the second consecutive day amid a firmer dollar and a rise in Treasury yields. 

The dollar rose on Friday, supported by higher Treasury yields on the back of hotter inflation in the US. 

“Recent US data is showing a resilient US economy with inflation picking up. Donald Trump’s high tariffs for imports and restricted immigration are expected to lift consumer prices, forcing the Federal Reserve to approach cautiously with monetary easing next year,” Guillermo Alcala, analyst at FXstreet, said in a report. 

At the time of writing, the February gold contract on COMEX was $2,691.26 per ounce, down 0.7% from the previous close. 

However, gold is still poised to end the week with modest gains on increasing safe-haven demand from geopolitical tensions. 

Focus on Fed policy
 

Investors will turn their focus on next week’s US Federal Reserve’s policy meeting. 

According to the CME FedWatch tool, traders are pricing in a 96.7% probability of the US central bank cutting rates by 25 basis points next week. 

However, the market is concerned about the rate-cutting cycle of the Fed next year as inflation in the US remains sticky. Additionally, the labour market was also resilient. 

This has supported the dollar, which has been weighing on the price of the precious metal. 

A stronger dollar makes commodities such as gold more expensive for overseas buyers, thereby limiting demand. 

Alcala said:

 

The uncertainty in the Middle East has provided support to the safe-haven commodity, but the positive momentum faded as markets calmed and the focus shifted to the US economy. 

Gold’s recent uptick not likely to last
 

In the past couple of weeks, gold prices have recovered to trade above the $2,650 per ounce level. 

Prices have risen to a near one-month high of $2,761.30 per ounce on Thursday due to expectations of a rate cut next week, and heightened geopolitical tensions. 

Source: Commerzbank Research

However, a stronger dollar and possible slowdown of the Fed’s rate-cutting cycle in 2025 does not bode well for gold. 

Experts see only two rate cuts by the US Fed next year, one in March and the other one in June. 

According to Commerzbank AG, next week’s Fed rate cut is already priced in.

“Only the news that the Chinese central bank bought a small amount of gold in November for the first time in seven months could be cited as an argument,” Carsten Fritsch, commodity analyst at Commerzbank AG, said in a report. 

Fritsch said that it was no surprise that gold prices corrected on Thursday due to a stronger dollar and higher yields. 

“At USD 2,700, gold seems to be running out of steam,” Fritsch said, adding that he does not expect the recent rally to continue into next year.

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