Gold prices experienced a slight increase in Asian trade on Thursday but remained below key levels as the US dollar rebounded. Doubts over the exact timing of the Federal Reserve’s potential interest rate cuts contributed to the dollar’s strength. Anticipation of crucial nonfarm payrolls data also tempered investor appetite for assets outside the dollar, posing challenges for non-yielding assets like gold.
Despite a strong rally in the final days of 2023, fueled by optimism about potential Fed rate cuts in March 2024, gold faced profit-taking at the beginning of the new year. Traders also adjusted their expectations for early rate cuts from the central bank.
Spot gold rose by 0.1% to $2,043.68 per ounce, while gold futures gained 0.4% to $2,050.95 per ounce by 00:24 ET (05:24 GMT). Both instruments had experienced a 1% decline in the first two days of 2024.
The lack of clarity on the timing of rate cuts emerged from the Federal Reserve’s December meeting minutes, contributing to gold’s losses. While most Fed officials anticipated interest rates to drop by up to 75 basis points in 2024, consensus on the timing was elusive. The minutes acknowledged progress in reducing inflation with previous rate hikes but underscored the need for a cautious approach due to increased economic uncertainty.
As the US economy cools with persistent inflation and a robust labor market, the upcoming nonfarm payrolls data on Friday is expected to provide further insights. The CME Fedwatch tool indicated a 65% chance of a 25 basis point rate cut in March, down slightly from the beginning of the week.
Despite the early-year weakness, gold had secured over a 10% gain throughout 2023. The precious metal is poised to benefit from potential easing interest rates this year, as higher rates increase the opportunity cost of holding bullion.
