In the Asian trading session on Friday, gold prices exhibited minimal movement, consolidating below the $2,050 mark after a recent decline triggered by a robust rebound in the dollar. Investors are now closely monitoring crucial U.S. labor market data, seeking insights into potential interest rate cuts in 2024.
The precious metal faced losses for the week, retracing from a robust rally towards the end of 2023. However, the upward momentum was curtailed by profit-taking activities and increasing uncertainty surrounding the Federal Reserve’s stance on interest rate cuts in the coming year.
Market sentiment experienced a shift as expectations for rate cuts in March 2024 were dialed back slightly, prompted by the Federal Reserve’s December meeting minutes, which provided limited indications on the timing of rate adjustments. This led to a notable strengthening of the dollar, marking its most significant weekly gain since July 2023.
At 23:25 ET (03:25 GMT), spot gold recorded a marginal 0.1% rise, reaching $2,045.41 per ounce, while gold futures also increased by 0.1% to $2,052.05 per ounce. Both instruments registered declines ranging from 0.8% to 1% for the week.
Investor attention has now shifted decisively towards the upcoming nonfarm payrolls data for December, scheduled for release later on Friday. The market anticipates signs of labor market cooling, but traders remain cautious due to unexpected strength indicated by better-than-expected weekly jobless claims and private payrolls data earlier in the week.
The Federal Reserve considers a cooling labor market and weaker inflation as pivotal factors in deciding on rate adjustments. While these aspects have demonstrated a noticeable cooling in recent months, uncertainty persists regarding whether this would prompt aggressive monetary easing by the Fed.
According to the CME Fedwatch tool, traders have adjusted their expectations, reducing the probability of a 25 basis point cut in March 2024 from 72% to 62% within the past week. This adjustment triggered substantial gains in the dollar, leading to a pullback in gold prices.
Despite recent fluctuations, gold has maintained its position above the $2,000 per ounce threshold for over a month, reflecting its robust performance in late 2023. The prospect of easing interest rates is expected to support bullion prices throughout the year, as higher rates increase the opportunity cost of investing in gold.
In contrast, copper prices are poised for weekly losses, influenced by dollar strength and weak Purchasing Managers Index (PMI) readings globally. Copper futures expiring in March declined by 0.1% to $3.8487 per pound, with a weekly decrease of approximately 1.1%. Concerns over a slowdown in copper demand were amplified by disappointing PMI figures from major economies, including the U.S. and China, the latter being the world’s largest copper importer. The sluggish economic recovery in China has raised apprehensions about the trajectory of copper demand.