Gold prices saw a slight increase in Asian trade on Friday, continuing their upward trend above key levels following dovish signals from the Federal Reserve, which led to significant losses in the dollar and Treasury yields.
The yellow metal rebounded this week after the Fed indicated that it had concluded interest rate hikes and might consider deeper rate cuts in 2024. The market’s response included pricing in at least three rate cuts by the central bank, with the first expected as early as March 2024.
The dollar, sliding to four-month lows, and falling Treasury yields, with the 10-year rate dropping below 4%, contributed to gold’s appeal. Lower interest rates make gold more attractive by reducing the opportunity cost of investing in an asset that offers no yields and is largely driven by sentiment and safe-haven demand.
Spot gold stabilized at $2,036.83 an ounce, while gold futures expiring in February rose 0.3% to $2,050.95 an ounce. Both instruments recorded gains of 1.6% to 2% throughout the week, although they remained below the record highs of over $2,100 reached earlier this month.
Market speculation is now focused on when the central bank will begin cutting interest rates, with Fed Fund futures prices indicating over a 70% chance of a 25 basis point rate cut in March 2024. Goldman Sachs anticipates three consecutive 25 basis point rate cuts, starting in March 2024.
While gold stands to benefit from lower interest rates, there is a potential for capital to shift towards riskier, high-yielding assets if risk appetite improves.
