Gold Prices Retreats Amid Dollar’s Recovery and Fed Rate Uncertainty


Gold prices dropped in Asian trade on Wednesday, giving up some of their recent gains as the dollar recovered amid some uncertainty about when the Federal Reserve (Fed) will cut interest rates in 2024.

In the last few trading days of 2023, the yellow metal saw a significant surge due to growing expectations that the Fed will start lowering interest rates as early as March 2024. Spot gold was still trading just $100 away from its record high set early in December.

However, it seemed that the markets were waiting for further confirmation that the Federal Reserve will start reducing interest rates in 2024. In response, the yellow metal gave up some of its recent gains. And the dollar sharply recovered from Tuesday’s close to five-month lows. 

At 00:04 ET (05:04 GMT), spot gold remained steady at $2,064.16 per ounce, while gold futures expiring in February saw a slight decline to $2,072.40 per ounce. On Tuesday, both instruments saw a 0.3% loss.

The markets were tense in anticipation of the Fed’s December meeting minutes, which are scheduled later in the day. Analysts cautioned that the minutes might not be as dovish as anticipated.

The Fed indicated intentions to lower interest rates in 2024, but Chair Jerome Powell gave few indications about when or how much would be cut.

A number of Federal Reserve officials had also tempered expectations following the December meeting for early rate cuts, pointing out that both the labour market and inflation were still running fairly hot.

Nevertheless, traders are pricing in a nearly 70 percent chance of a 25 basis point rate reduce in March 2024, according to the CME Fedwatch tool.

All of December saw a spectacular rally in the financial markets. Especially the stock market, driven by anticipates of early reductions in interest rates.

Gold Prices December Rally and Future Momentum

In December, gold recorded a robust rally as well, and there might be more upward momentum ahead. Lower interest rates are good news for gold because investing in it has a higher opportunity cost when yields are high.

The minutes from Wednesday also come before the important nonfarm payrolls data. Which is anticipate to provide additional insights into the labour market, is due this Friday. Two key factors for the Fed to start reducing interest rates are a slowing labour market and less inflation.

Industrial metals saw a slight decline in copper prices on Wednesday, continuing a run of losses that began with China’s poor economic data, the world’s largest importer.

March-ending copper futures decreased 0.1% to $3.8652 per pound, moving further away from a five-month peak reached in late December. The dollar’s strength put additional pressure on prices.

A major source of contention for copper markets was China’s weakness, since the post-COVID economic recovery mainly did not materialise in 2023.

Additionally, the United States PMI statistics for December, which is anticipated later on Wednesday, was awaited by the markets.