Gold prices exhibited minimal movement in Asian trading on Wednesday, largely retaining losses incurred in the preceding week as investors reconsidered expectations of early interest rate cuts by the Federal Reserve.
Market attention is focused on the upcoming U.S. Consumer Price Index (CPI) data, crucial for gauging whether U.S. inflation sustained its momentum in December.
Gold, having experienced significant declines over the past week, reflected traders’ gradual retreat from bets that the Fed might initiate interest rate reductions as early as March 2024. This shift triggered substantial gains in the U.S. dollar, consequently weighing on bullion prices.
Despite the setbacks, the precious metal managed to hold above the critical $2,000 per ounce threshold, a level comfortably breached in early December. Notably, gold prices have maintained a roughly 10% increase for the year 2023.
As of 00:28 ET (05:28 GMT), spot gold steadied at $2,029.30 per ounce, while gold futures expiring in February steadied at $2,034.65 per ounce.
The upcoming CPI data, scheduled for release on Thursday, is anticipated to reveal a marginal uptick in inflation for December. Persistent inflation, combined with recent signs of resilience in the labor market, provides the Federal Reserve with room to maintain higher interest rates for an extended period.
Traders have been gradually reducing expectations of the Fed commencing rate cuts as early as March 2024. According to the CME Fedwatch tool, the likelihood of a 25 basis point rate cut in March stands at 63.6%, down from 69.6% a week ago.
Federal Reserve officials have also pushed back against expectations for an imminent rate cut, with Atlanta Fed President Ralph Bostic expressing a continued bias towards maintaining tight monetary policy in the near term.
While the Fed has signaled potential rate cuts in 2024, it has offered limited insight into the timing of these adjustments, maintaining a predominantly data-driven approach.
Higher interest rates increase the opportunity cost of investing in gold, which yields no interest. This dynamic has pressured gold over the past two years, with sustained gains only anticipated on expectations of lower rates in 2024.
In the realm of industrial metals, copper prices experienced a modest rise on Wednesday after a recent sharp decline, driven by growing concerns about a potential demand slowdown in the current year.
March-expiry copper futures increased by 0.3% to $3.7717 per pound, although they remained over 2% lower in 2024.
A series of discouraging economic indicators worldwide contributed to the decline in copper prices, with particularly weak data from leading importer China causing significant apprehension. Market apprehensions center around the potential erosion of copper demand in 2024 due to slowing economic activity, exacerbated by the impact of elevated interest rates.
Attention is now directed towards Chinese inflation and trade data expected on Friday, seen as pivotal in providing further insights into the world’s largest copper importer’s economic outlook.
