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Gold’s rapid descent: From record highs to uncertain lows in a week

Just a week ago, gold futures were soaring at $2,150 per ounce. However, by Monday’s close, they had plummeted to under $2,000, with further declines anticipated ahead of crucial inflation data and the Federal Reserve’s statement and rate decision on Thursday.

Both inflation and the Fed’s decisions, along with the so-called dot plot indicating rate projections for the next one to two years, serve as short-term influences during weeks like this. Nonetheless, gold’s trajectory over the past five trading sessions has been undeniably remarkable.

Last Friday, gold settled at $2,014.50, but by Monday, it had slipped to $1,993.70 for February delivery. This marked a significant drop of over $158 from the all-time high reached just a week ago, when it exceeded $2,152 per ounce.

To put this decline into perspective, on December 1, gold reached a record high of $2,089.70, making the fall from that point nearly $100 per ounce – a striking plunge even by gold’s recent standards.

Several factors contributed to this rapid decline. Concerns of overbought conditions, the perception that U.S. inflation and interest rates were not aligned with reality, and a resurgence in the value of the U.S. dollar since late last week all played a role.

The coming days will be pivotal, with the release of the November Consumer Price Index tonight. Analysts expect the report to reveal a decrease in inflation to an annual rate of 3.0% from 3.2%, while the core rate, excluding food and energy, is expected to remain steady at 4%.

Additionally, the Federal Reserve’s policy committee is set to announce its latest interest rate decision at the conclusion of its two-day meeting on Wednesday, although market expectations lean towards no change in rates.

The dollar has already seen an uptick in anticipation of the data release, with the ICE dollar index rising by 0.08 points to reach 104.09. Consequently, the Australian dollar retreated below 66 U.S. cents to approximately 65.60 U.S. cents as of 7:30 am Tuesday, Sydney time.

Meanwhile, Treasury yields, which had briefly surged, subsequently receded. The yield on the U.S. two-year note remained unchanged at 4.727%, while the 10-year note saw a slight increase of less than one basis point, reaching 4.24% after briefly exceeding 4.27% earlier in the session.

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