Gold prices saw a modest rise in Asian trade on Tuesday, recovering slightly from a challenging start to the year. Market sentiment shifted as expectations for early interest rate cuts by the Federal Reserve were reevaluated ahead of crucial U.S. inflation data scheduled for release later this week.
The yellow metal experienced a notable decline, dipping below the $2,050 per ounce level in the past week, aligning with a rebound in the U.S. dollar. Strong labor market data raised uncertainty about the extent of the Fed’s inclination to initiate policy easing early in the year. However, this week witnessed some relief for gold prices as the dollar retreated from three-week highs, accompanied by a degree of profit-taking. Nevertheless, gold remained below the peaks reached in December.
In the latest session, spot gold increased by 0.2% to $2,032.91 per ounce, while gold futures expiring in February rose by 0.3% to $2,038.85 per ounce by 00:07 ET (05:07 GMT).
Market attention is now focused on the upcoming U.S. Consumer Price Index (CPI) data scheduled for release on Thursday. Analysts anticipate a mild uptick in December’s inflation figures, coupled with robust nonfarm payrolls data, providing the Federal Reserve with more flexibility to maintain higher interest rates for an extended period.
The reassessment of expectations for early interest rate cuts contributed to gold relinquishing some gains achieved in December. Despite the recent fluctuations, gold concluded 2023 with an impressive 10% gain.
Federal Reserve officials have also pushed back against the notion of early interest rate cuts. Atlanta Fed President Ralph Bostic expressed a bias toward maintaining tight policy in the near term, citing inflation still above the Fed’s 2% annual target. Bostic foresees eventual rate cuts in 2024 but on a smaller scale than market expectations, signaling around 50 basis points.
Traders have been adjusting their bets on the timing of rate cuts, with the CME Fedwatch tool indicating a reduced probability of a March cut. Traders now price in a 59.4% chance for a March cut, down from 64% on Monday and 70.7% a week ago.
The prospect of higher interest rates for an extended period is perceived negatively for gold, as it elevates the opportunity cost of investing in the precious metal, known for offering no yield.
In the realm of industrial metals, copper prices showed minimal movement on Tuesday under the pressure of a robust dollar. Additionally, anticipation of crucial economic indicators from top importer China kept traders cautious about the performance of the red metal.
Copper futures expiring in March rose by 0.2% to $3.8288 per pound after experiencing a 2% decline in the first week of 2024. Eyes are on Chinese inflation and trade figures for December, set to be released on Friday. Despite broader economic weaknesses, China’s copper imports displayed surprising resilience in 2023, and Friday’s data will reveal whether this trend persisted in December.