Gold prices experienced a significant surge in Asian trade on Wednesday, reaching a near seven-month high. This uptick in the precious metal’s value was fueled by a series of dovish signals from Federal Reserve officials, intensifying speculation about an early pivot by the central bank.
The decline of the dollar to near four-month lows played a pivotal role in benefiting gold, along with the retreat of U.S. Treasury yields, which reached a two-month low in Asian trade. The cautious atmosphere prevailing ahead of key economic readings from the U.S. and China this week further bolstered safe-haven demand for gold. This sentiment was particularly heightened as weak economic readings from Japan and the euro zone raised concerns about a potential global economic slowdown.
As of 23:27 ET (04:37 GMT), spot gold recorded a 0.1% increase, reaching $2,044.08 per ounce, while gold futures expiring in December rose by 0.2% to $2,044.20 per ounce. Notably, spot prices were now just $30 away from the record high touched earlier this year.
The surge in gold prices can be attributed to the Federal Reserve officials’ dovish comments, indicating a potential pivot in the central bank’s stance. Fed officials emphasized the need for caution in maintaining higher interest rates for an extended period. They suggested that easing inflation might prompt the bank to loosen its policy earlier than anticipated.
Christopher Waller, a noted hawk and Fed Governor, mentioned that high rates had effectively curbed inflation this year. He suggested that a further decline in price pressures could lead the bank to cut interest rates. Traders responded by pricing in at least a 40% chance of a rate cut by March 2024, with expectations that the central bank would keep rates steady in December. Additional cues on monetary policy are expected from Waller and other Fed officials in the coming week, leading up to the Fed’s mid-December meeting. Chairman Jerome Powell is also scheduled to speak later this week.
The prospect of a shift in the Fed’s hawkish stance has driven robust gains in gold throughout November, with the precious metal poised to add over 3% for the month. The potential for rate cuts by the Fed is seen as favorable for gold markets, as higher rates increase the opportunity cost of investing in the yellow metal.
Analyst Tony Sycamore from IG Markets described the current trend as a “perfect environment for gold” in a recent interview with Ausbiz.
In the realm of industrial metals, copper prices remained stable on Wednesday, supported by supply disruptions in Peru and Panama. Copper futures expiring in March held steady at $3.8460 a pound, following a 1.5% rally earlier in the week. The weakness in the dollar also contributed to the positive momentum in copper prices.
A copper mine operated by Canadian miner First Quantum faced closure by the Panama government on the grounds of an unconstitutional contract. This development coincided with a planned strike at MMG Ltd’s Las Bambas copper mine in Peru. The resulting output disruptions indicated a potential tightening of copper markets in the coming months, a trend that could further support prices of the red metal.
However, market sentiment remained cautious ahead of key purchasing managers index data from China. This data is anticipated to reveal a continued decline in manufacturing activity in the world’s largest copper importer, adding an element of uncertainty to copper markets.
