2023.12.1418:06:00UTC+00Gold Futures Settle Sharply Higher As Dollar Tumbles On Fed's Dovish Tone

Gold prices rose sharply on Thursday as the dollar tumbled and Treasury yields dropped after the Federal Reserve left interest rates unchanged and hinted at three rate reductions in 2024.

The Fed decided to hold interest rates steady on Wednesday, and signaled three interest rate cuts next year, citing easing inflation and slowing economic growth.

Fed Chair Jerome Powell acknowledged that rate cuts will be a "topic of discussion" at upcoming meetings.

Investors also tracked policy announcements from the European Central Bank (ECB), Bank of England (BoE), Swiss National Bank (SNB) and the Norges Bank on Thursday.

The dollar index tanked to 101.77 before recovering to 102.00, but still remained in negative territory, losing about 0.84%.

Gold futures for February ended higher by $47.60 or about 2.5% at 2,044.90 an ounce.

Silver futures for March ended up $1.465 at $24.386 an ounce, while Copper futures for March settled at $3.8925 per pound, gaining $0.1050.

"A weaker dollar and lower yields, if sustained, could continue to boost gold at a time when traders are feeling much more optimistic. Perhaps gold could enjoy a Santa rally of its own this year," says Craig Erlam, Senior Market Analyst at OANDA, UK & EMEA.

The ECB's Governing Council, led by ECB President Christine Lagarde, held the main refinancing rate, or refi, at 4.5% on Thursday, in the final rate-setting session this year. The ECB lowered its inflation projections for this year and next.

The BoE left its benchmark rate unchanged at a 15-year high for the third straight time and retained its hawkish bias in contrast to the stance of its peer U.S. Federal Reserve that hinted at three rate cuts next year.

The Swiss Central Bank also left its interest rate unchanged, while the Norges Bank raised its policy rate from 4.25% to 4.5%.

The BoE's announcement was arguably more notable despite offering no forecasts and there being no press conference after. The voting was unchanged from the last meeting, with three policymakers backing a rate hike, very much running counter to the message from the Fed last night," says Craig Erlam, Senior Market Analyst at OANDA, UK & EMEA.

"Perhaps armed with new projections in February the message from the BoE will be very different but at this moment, that was rather more hawkish than many will have expected," he adds.

In U.S. economic releases, the Commerce Department's report said retail sales rose by 0.3% in November after slipping by a downwardly revised 0.2%. Economists had expected retail sales to edge down by 0.1%, matching the dip originally reported for the previous month.

Meanwhile, the Labor Department released a separate report showing first-time claims for U.S. unemployment benefits unexpectedly decreased in the week ended December 9th, falling to 202,000, a decrease of 19,000 from the previous week's revised level of 221,000.

Economists had expected jobless claims to come in unchanged compared to the 220,000 originally reported for the previous week.