Gold prices experienced a notable upswing on Tuesday, following robust gains in the final trading days of 2023. Traders expressed optimism about the possibility of early interest rate cuts by the Federal Reserve in 2024, propelling the yellow metal’s spot prices approximately $70 below a record high set at the start of December. The market sentiment was buoyed by dovish signals from the Fed, with growing speculation that rate adjustments could commence as early as March 2024.
As of 23:36 ET (04:36 GMT), spot gold exhibited a 0.3% increase, reaching $2,069.89 per ounce, while gold futures expiring in February rose by a similar margin to $2,078.90 per ounce. The momentum in gold’s ascent, however, was tempered by the anticipation of crucial U.S. economic indicators for December, particularly the eagerly awaited nonfarm payrolls data slated for release later in the week.
Market attention has shifted to the impending nonfarm payrolls data, set to be disclosed this Friday, which is anticipated to reveal a further cooling in the labor market. This trend could intensify pressure on the Federal Reserve to contemplate early rate cuts. The CME’s Fedwatch tool currently reflects traders pricing in a more than 70% likelihood of a 25-basis-point rate cut by the Fed in March.
Nevertheless, before reaching a decision in March, the central bank must grapple with a series of economic readings, notably on inflation and the labor market. Although both inflation and labor market activity moderated throughout 2023, price pressures remained above the Fed’s 2% annual target, and the labor sector continued to operate at a relatively high level.
In December, Fed officials cautioned that a more substantial cooldown in these trends would be necessary for them to consider an early interest rate cut. They also emphasized that the optimism surrounding early rate cuts was somewhat premature.
Despite these cautious remarks, the consensus remains that the Fed is likely to trim interest rates at some point in 2024, a scenario that aligns favorably with gold. The prospect of higher yields tends to increase the opportunity cost of investing in gold, a factor that weighed on the precious metal throughout most of 2023 before its notable recovery in December.
In the realm of industrial metals, copper prices saw a modest rise on Tuesday, driven by positive market sentiment regarding stronger demand and tighter copper markets expected in 2024. However, this optimism was offset by data from China revealing persistent economic weakness in the world’s leading copper importer.
Copper futures expiring in March exhibited a 0.2% increase to $3.8973 per pound, building on a 2.1% rise witnessed in 2023. Official purchasing managers index data from China indicated a contraction in manufacturing activity beyond expectations for December, while non-manufacturing activity remained on the verge of contraction.
Despite a private survey suggesting some resilience in the manufacturing sector, overall growth remained subdued, with both employment and inflation failing to pick up in December. These readings signaled ongoing economic fragility in the world’s top copper importer, potentially impacting copper demand in 2024.
However, prospects for copper prices remain positive, driven by increased demand for electric vehicles and green energy. Additionally, supply constraints are expected due to significant mine closures in Peru and Panama, contributing to the overall bullish outlook for the red metal.
