Gold Prices Hold Steady Ahead of Inflation Data

Gold prices in Asian trade on Tuesday saw a modest increase, rebounding from a challenging start to the year, as market sentiment shifted on expectations of potential Federal Reserve rate cuts, ahead of pivotal U.S. inflation data later this week.

The gold market experienced a significant drop below the $2,050 per ounce mark last week, aligning with a strengthening dollar. This decline came amid robust labor market data, which created uncertainty about the Federal Reserve’s inclination to initiate early policy easing.

Gold prices found some respite this week with the dollar retreating from its three-week peak due to profit-taking. However, the precious metal continued to trade significantly below the peaks observed in December.

Spot gold increased by 0.2% to $2,032.91 per ounce, while February gold futures climbed 0.3% to $2,038.85 per ounce as of 00:07 ET (05:07 GMT).

U.S. inflation data key for rate-cut signals

Traders showed a strong preference for the dollar ahead of the upcoming consumer price index data set for release on Thursday. Anticipations suggest a modest uptick in December’s inflation. With the robust nonfarm payrolls report, this provides the Federal Reserve greater flexibility to maintain elevated interest rates.

As expectations for early interest rate cuts diminished, gold retraced some of its December gains. Nonetheless, gold closed out 2023 with a solid 10% increase.

Fed officials, including Atlanta Fed President Ralph Bostic, emphasized resistance to early interest rate cuts. Bostic highlighted that with inflation exceeding the Fed’s 2% target, he leans toward maintaining tight policy in the short term.

Bostic anticipates a reduction in rates in 2024 but suggests a cut of only around 50 basis points, which is considerably less than market expectations.

Traders are gradually reducing expectations of a rate cut by the Fed in March. The CME Fedwatch tool indicates a 59.4% likelihood for a March cut, a decline from 64% earlier in the week and 70.7% a week ago.

Indeed, when interest rates remain elevated for an extended period, gold tends to become less attractive as an investment because it doesn’t provide any yield, making other interest-bearing assets more appealing to investors.

Copper holds steady amid dollar and China data awaited

Copper’s stability reflects market caution due to the dollar’s strength and upcoming economic data from China, the world’s leading consumer of the metal.

Despite a decline earlier in 2024, copper futures for March showed a modest 0.2% increase, reaching $3.8288 per pound.

Besides U.S. data, market attention this week also centers on China’s December inflation and trade numbers, set to release on Friday. Anticipations suggest China may experience continued disinflation, and a decline in trade activity, especially exports.

Despite broader economic challenges, China’s copper imports showed unexpected resilience throughout 2023. The upcoming Friday data will reveal if this trend persisted into December.

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