Gold prices experienced a downturn in Asian trade on Monday, extending losses from the previous session, as robust U.S. labor data prompted a reassessment of expectations for early interest rate cuts. The precious metal faced a challenging start to 2024, mirroring a substantial rebound in the dollar, as traders scaled back their predictions of a Federal Reserve (Fed) rate reduction as early as March.
This sentiment was exacerbated by stronger-than-anticipated nonfarm payrolls data on Friday, indicating resilience in the labor market and providing the Fed with increased flexibility to maintain higher interest rates for an extended period. Gold also witnessed significant profit-taking following a robust surge in December, concluding 2023 with over a 10% gain.
Spot gold recorded a 0.5% decline to $2,035.69 per ounce, while gold futures expiring in February dropped 0.4% to $2,042.25 per ounce by 00:00 ET (05:00 GMT). Both instruments incurred losses of approximately 0.9% in the first week of 2024.
Market attention has now shifted to the upcoming U.S. Consumer Price Index (CPI) inflation data for December, scheduled for release on Thursday. This data, following the strong payrolls report, is anticipated to reveal an uptick in inflation from the previous month.
Any indications of persistent inflation are viewed unfavorably for expectations of early interest rate cuts by the Fed, given that labor market strength and inflation are key factors considered by the central bank when adjusting monetary policy. The CME Fedwatch tool revealed a pullback in expectations for a March rate cut, with traders now foreseeing a roughly 63% chance of a 25 basis point cut, down from over 73% the previous week.
The prospect of higher interest rates in the near term is likely to exert additional pressure on gold, particularly after facing challenges from rising rates throughout most of 2023. Although a rate cut by the Fed is still anticipated later in the year, analysts at ING have adjusted expectations, pushing back the forecast for a cut from March to May.
In the realm of industrial metals, copper prices cautiously rose on Monday after a sharp decline in the first week of 2024. Copper futures expiring in March increased by 0.3% to $3.8128 per ounce, following a 2.2% loss in the previous week. The decline in prices was attributed to a robust dollar and weak purchasing managers index data from major economies, especially China.
China is poised to release additional economic indicators this week, with a keen focus on inflation and trade data scheduled for this Friday. Traders in the copper market will closely monitor Chinese copper imports as a key point of interest.
