In Asian trade on Monday, gold prices experienced a notable increase, recovering a significant portion of the losses incurred at the beginning of the new year. The surge was attributed to escalating tensions in the Middle East, driving demand for the precious metal as a safe-haven asset. Concurrently, traders were closely monitoring the situation while anticipating potential early interest rate cuts by the Federal Reserve.
The surge in demand for gold was particularly evident as the conflict between the United States and the Iran-aligned Houthi group intensified over the past week. Analysts suggested that this geopolitical turmoil could potentially spill over into the Israel-Hamas conflict, further fueling safe-haven demand.
Mixed inflation readings in the United States played a role in maintaining traders’ expectations of potential interest rate cuts by the Federal Reserve, possibly as early as March 2024. This sentiment kept the U.S. dollar subdued and directed some capital towards rate-sensitive assets.
During Asian trading hours, spot gold recorded a 0.2% increase, reaching $2,053.88 per ounce, while gold futures expiring in February showed a 0.3% rise, reaching $2,057.85 per ounce by 00:27 ET (05:27 GMT).
Traders Anticipate March Rate Cut Despite Mixed Inflation Data
Traders seemed resolute in their expectations of a 25-basis-point rate cut by the Federal Reserve in March, as indicated by the CME Fedwatch tool. The tool reflected a 70% likelihood of a March cut, up from the 64% probability observed the previous week. The mixed inflation data played into this anticipation, with consumer price index inflation slightly exceeding expectations in December, while producer price index inflation fell more than anticipated.
The upcoming week promises more insights into the Fed‘s outlook, with a series of addresses from Fed officials expected to provide cues. However, it’s noteworthy that some Fed officials have downplayed the hopes of early rate cuts, introducing an element of uncertainty into the market.
Gold’s Near-Term Outlook and Copper’s Rebound Despite Chinese Factors
Uncertainty regarding the trajectory of U.S. interest rates is predicted to keep gold trading within a range in the near term. Nevertheless, the yellow metal stands to benefit from any potential decreases in lending rates later in the year.
In the realm of industrial metals, copper prices witnessed a notable rebound on Monday, countering a lackluster start to the new year. Despite this positive development, negative signals emanating from China have cast a shadow on the red metal’s outlook. Copper futures expiring in March exhibited a 0.8% rise, reaching $3.7648 per pound.
China’s central bank took market participants by surprise by keeping its medium-term lending rates unchanged on Monday. This decision indicated limited room for further monetary easing to support the nation’s delicate economic recovery. The absence of changes in China’s benchmark loan prime rate suggested restrained levels of monetary stimulus, contributing to a cautious outlook.
Furthermore, Chinese trade data released on Friday indicated a decrease in copper imports in December. This decline was attributed to elevated inventory levels and increased domestic output, further influencing the overall sentiment around copper markets.
