Gold opens below $4,100 as optimism for rate reduction fades

Gold (GC=F) futures opened at $4,084.40 per ounce on Monday, down 0.2% from Friday’s close of $4,094.20. The price of gold was down in early trading.

Soft gold prices coincide with increased uncertainty about the Fed’s next move on interest rates. The policymaking committee will meet Dec. 9 and 10 to decide whether a third rate reduction this year is warranted. The decision will not be straightforward, given the factors in play and the delayed economic reporting caused by the government shutdown.

Before the shutdown, inflation remained above the Fed’s 2% target, and employment data showed a weakening labor market. Rising prices and higher unemployment are difficult to manage simultaneously, and Fed committee members were not aligned on the best path forward. Delayed economic data complicates the situation. Currently, analysts are pricing in a 44.6% chance of a quarter-point rate reduction in December according to CME FedWatch. A month ago, the probability was 93.7%.

Lingering high interest rates can suppress gold demand, because the precious metal does not pay interest.

The opening price of gold futures on Monday is up 0.2% from Friday’s close. Here’s a look at how the opening gold price has changed versus last week, month, and year:

One week ago: +0.6%

One month ago: -6.2%

One year ago: +59.2%

Last Friday, gold’s one-year gain was 63.4%.

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The price of gold can be quoted in multiple forms because the precious metal is traded in different ways. The two main gold prices investors should know about are spot prices and gold futures prices.

Learn more: How to invest in gold in 4 steps

The spot price of gold is the current market price per ounce for physical gold as a raw material, sometimes called spot gold. Gold ETFs that are backed by physical gold assets generally track the gold spot price.

The spot price is lower than what you’d pay to buy gold coins, bullion, or jewelry, since your total price will include a markup called the gold premium that covers refining, marketing, dealer overhead, and profits. The spot price is more like a wholesale price, and the spot price plus the gold premium is the retail price.

Learn more: Thinking of buying gold? Here’s what investors should watch for.

Gold futures are contracts that mandate a gold transaction at a specific price on a future date. These contracts are exchange-traded and more liquid than physical gold. They settle on the contract expiration date or earlier, either financially or via delivery. A financial cash settlement involves paying the contract’s profit or loss in cash. Delivery means the seller sends physical gold to the buyer for the contracted price.

Supply and demand determine gold spot prices and gold futures prices. Factors that influence gold supply and demand include:

Geopolitical events

Central bank buying trends

Inflation

Interest rates

Mining production

Learn more: Who decides what gold is worth? How prices are determined.

Whether you’re tracking the price of gold since last month or last year, the price-of-gold chart below shows the precious metal’s steady upward climb in value.