In Asian trade on Monday, gold prices experienced a notable decline, dropping below the key level of $2,000 an ounce. This sharp reversal from record highs observed last week was triggered by strong labor market data, prompting traders to reconsider expectations regarding the Federal Reserve’s potential interest rate cuts in early 2024.
Spot gold saw a 0.4% decline, reaching $1,996.24 per ounce, while gold futures expiring in February slipped 0.1% to $2,012.75 per ounce by 23:19 ET (04:19 GMT). Both instruments were trading approximately $150 below the record highs achieved last week.
The main factors contributing to the drop in gold prices included a resilient U.S. dollar and indications of strength in the U.S. economy, leading to improved risk sentiment. The upcoming Federal Reserve meeting this week further heightened trader caution, with the central bank expected to maintain current interest rates. However, market focus remains on the Fed‘s outlook for monetary policy in 2024, particularly in light of robust recent U.S. labor market data.
Following Friday’s nonfarm payrolls report, which revealed strong job market conditions, expectations for a rate cut as early as March 2024 were significantly reduced. This shift in sentiment prompted substantial losses in gold prices. The improved risk appetite after the labor market report suggested just enough strength in the U.S. economy for the possibility of a “soft landing,” leading to declines in gold prices and advancements in stock markets.
Looking beyond the Federal Reserve meeting, other central banks, including the Bank of England, European Central Bank, and Swiss National Bank, are set to announce interest rate decisions this week. All three banks are expected to signal a commitment to higher-for-longer interest rates. The prospect of elevated interest rates tends to weigh on gold prices by increasing the opportunity cost of investing in the precious metal, which does not offer yields.
Additionally, U.S. inflation data for November is scheduled for release later in the week, adding another layer of potential impact on gold prices.
In the realm of industrial metals, copper prices experienced a dip on Monday, influenced by weak economic signals from major importer China. Copper futures expiring in March fell by 0.6% to $3.8087 per pound. Over the weekend, Chinese inflation data revealed a contraction in the consumer price index for a second consecutive month in November, while the producer price index inflation deepened into a fourteenth consecutive month of contraction. These readings suggest sustained economic weakness in China, despite ongoing liquidity measures from Beijing. While recent data indicated robust Chinese copper imports in November, concerns about disinflation and subdued spending weighed on copper prices.
