In Asian trade on Wednesday, gold prices showed minimal movement, maintaining the majority of their losses from the previous week as investors questioned the likelihood of early interest rate cuts by the Federal Reserve.
The focus is primarily on upcoming U.S. consumer price index (CPI) data, which could offer insights into whether U.S. inflation remained persistent in December.
Gold had experienced significant losses over the past week as traders gradually reduced expectations of a potential interest rate cut by the Federal Reserve as early as March 2024. This shift in sentiment led to substantial gains in the U.S. dollar, putting pressure on gold prices.
Nevertheless, gold managed to stay above the crucial $2,000 an ounce level, a threshold it surpassed in early December. Gold prices were also up approximately 10% for the year 2023.
As of the latest update, spot gold steadied at $2,029.30 per ounce, while gold futures expiring in February steadied at $2,034.65 per ounce by 00:28 ET (05:28 GMT).
Upcoming CPI data in the U.S. is expected to reveal a slight growth in inflation for December. The persistence of inflation, coupled with recent signs of resilience in the labor market, provides the Federal Reserve with more room to maintain higher interest rates for an extended period.
Traders have been gradually reducing their bets on the possibility of the Fed beginning to trim rates as early as March 2024. According to the CME Fedwatch tool, the probability of a 25 basis point rate cut in March now stands at 63.6%, down from 69.6% a week ago.
Federal Reserve officials have also pushed back against expectations for early rate cuts. Atlanta Fed President Ralph Bostic stated that he remains biased towards maintaining tight monetary policy in the near term.
While the Fed has signaled the possibility of rate cuts in 2024, it has not provided detailed information on the timing of these cuts, maintaining a data-driven approach to interest rate adjustments.
Higher interest rates increase the opportunity cost of holding gold, a non-yielding asset. This dynamic has influenced gold prices over the past two years, with substantial gains in gold typically linked to expectations of lower rates.
In the realm of industrial metals, copper prices saw a slight rise on Wednesday after a sharp decline over the past week amid growing concerns about a potential demand slowdown in the coming year.
Copper futures expiring in March rose 0.3% to $3.7717 per pound but were down over 2% year-to-date.
Weak economic indicators globally, especially from top copper importer China, have contributed to concerns about slowing economic activity impacting copper demand. The effects of elevated interest rates on the economy are also contributing to fears of reduced copper demand in 2024.
Market participants are now awaiting Chinese inflation and trade data scheduled for Friday to gain further insights into the state of the world’s largest copper importer.