Wednesday’s Asian trading saw minimal movement in gold prices, which were mostly unchanged from the previous week as investors questioned their bets on an early Federal Reserve interest rates cut.
The main focus was on the impending consumer price index (CPI) statistics from the United States. Which may show that inflation in the country stayed stable in December.
Over the past week, traders have gradually reduced their bets on the possibility. That the Fed may start cut interest rates as early as March 2024. Which has left gold nursing steep losses. The dollar saw significant gains as a result of this idea, which affected bullion prices as well.
Nevertheless, the yellow metal held onto its value above the sought-after $2,000 per ounce mark, having easily crossed it in early December. In 2023, gold prices increased by roughly 10% as well.
By 00:28 ET (05:28 GMT), gold futures expiring in February remained steady at $2,034.65. While spot gold remained stable at $2,029.30 per ounce.
CPI Data Anticipation and Impact on Inflation Outlook
Anticipated CPI data for Thursday indicates a slight increase in inflation in December. Sticky inflation and recent labour market resilience give the Fed greater leeway to maintain higher rates for longer.
Bets by traders that the Fed might start lowering rates as early as March 2024 were observed to be steadily declining. Bets on a 25 basis point rate reduce in March were shown on the CME Fedwatch tool at a 63.6% chance. Which is a decrease from the 69.6% chance observed a week earlier.
Additionally, it was observed that Fed officials were resisting calls for an early rate reduced. Ralph Bostic, the president of the Atlanta Fed, expressed his continued bias in favour of tightening monetary policy in the near future.
Fed’s Stance on Rate Reduction and Trader Bets:
The Federal Reserve has indicated that rates will eventually be lowered in 2024. But it hasn’t given much detail about when those reductions will occur. Interest rate reductions by the central bank have thus far mostly been based on data.
The opportunity cost of investing in gold, which has no yield, increases with higher rates. Over the previous two years, this trade had put pressure on the yellow metal, with gold seeing steady gains only in response to forecasts for lower rates in 2024.
Amidst mounting worries about a slowdown in demand this year. Copper prices among industrial metals increased marginally on Wednesday after plunging precipitously over the previous week.
March-ending copper futures increased 0.3% to $3.7717 per pound, but they had already dropped more than 2% in 2024.
weak economic data from all over the world battered copper prices, with China, the world’s largest importer, providing particularly weak data. The market is concerned that this year’s slowing economic growth will reduce demand for copper. Particularly as the consequences of high interest rates become more ingrained in the economy.
With China being the world’s largest importer of copper, attention is now focus on its inflation and trade figures, which are expected on Friday.