Dec 26, 2023: Gold prices surged in low-volume Asian trading on Tuesday, breaking out of a stagnant trading pattern witnessed through much of December. The catalyst behind this upward trend was the release of softer-than-expected U.S. inflation data, further fueling expectations of early interest rate cuts in 2024.
The yellow metal enjoyed a substantial upward momentum following a weaker reading on the PCE price index, the Federal Reserve’s preferred inflation metric. This report, coupled with dovish signals from the Fed in its final meeting for 2023, bolstered the belief that the central bank might initiate interest rate reductions as early as March 2024.
The outlook for gold appeared robust in this scenario, considering that higher interest rates elevate the opportunity cost of investing in the precious metal.
At 23:58 ET (00:58 GMT), spot gold surged by 0.5% to reach $2,064.16 per ounce, while February gold futures climbed 0.3% to $2,075.10 per ounce. Notably, spot gold broke free from its December range of $2,000 to $2,050, positioning itself within $100 of a record high above $2,130 reached at the month’s outset.
Anticipated Rate Cuts Bolster Gold Prospects The release of softer PCE inflation data last Friday led traders to heighten their expectations of the Fed’s initiation of interest rate cuts by March 2024. CME Group’s FedWatch tool indicated a probability of over 70% for a 25 basis point cut by March 2024. Goldman Sachs projected that the central bank might follow a March cut with two additional cuts in the first half of 2024, followed by two more later in the year.
Despite these predictions, several Fed officials cautioned that assumptions regarding early rate cuts by the central bank could be overly optimistic. Nevertheless, the dollar slid to nearly a five-month low on Tuesday, contributing to a decline in Treasury yields and benefiting gold prices.
Gold’s Potential Amid Global Economic Shifts With prospects of a tighter monetary policy impacting major economies, gold might gain traction amid the anticipated adverse global economic conditions in the coming year.
Steady Copper Prices and Positive 2024 Outlook In the realm of industrial metals, copper prices witnessed an uptick in Asian trading on Tuesday, extending recent gains amid a sense of optimism regarding the metal’s future in 2024.
March-expiry copper futures rose by 0.4% to $3.9153 per pound. The red metal’s support stemmed from a recent decline in the dollar and the expected surge in demand for electric vehicles worldwide, with copper being a pivotal component in batteries and electronics.
Furthermore, an anticipated tightening of copper supplies, due to significant mine closures in Panama and Peru, further contributed to the positive outlook for the red metal.