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Wednesday, 22. May 2024

Gold Prices Nervous Ahead of Inflation Figures


Gold prices in Asian trade on Wednesday showed minimal movement, holding onto a significant portion of their losses from the previous week. The subdued performance came as investors continued to reevaluate and question the likelihood of early interest rate cuts by the Federal Reserve.

The spotlight was primarily on the forthcoming U.S. consumer price index data, as it could shed light on whether inflation in the United States persisted at elevated levels in December.

Gold experienced significant declines over the recent week as traders increasingly reduced expectations for the Federal Reserve to initiate interest rate cuts by March 2024. This shift led to pronounced gains in the dollar, subsequently exerting downward pressure on gold prices.

Nevertheless, gold maintained its position above the important threshold of $2,000 per ounce, a mark it surpassed comfortably in early December. Additionally, the metal recorded gains of approximately 10% over the course of 2023.

Spot gold remained stable at $2,029.30 per ounce, and gold futures expiring in February settled at $2,034.65 per ounce as of 00:28 ET (05:28 GMT).

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

The upcoming CPI data for Thursday is anticipated to reveal a modest increase in December’s inflation. Persistent inflation and recent indications of a robust labor market provide the Fed with more flexibility to maintain higher interest rates for an extended period.

Traders have been reducing their expectations for the Fed to initiate rate cuts as early as March 2024. According to the CME Fedwatch tool, the probability of a 25 basis point rate reduction in March has decreased to 63.6%, compared to 69.6% a week prior.

Federal Reserve officials have been resisting the idea of early rate cuts, as highlighted by Atlanta Fed President Ralph Bostic, who indicated a preference for maintaining a tight monetary policy in the short term.

The Federal Reserve has hinted at potential rate cuts in 2024 but has been vague about the specific timing. Thus far, the central bank continues to rely heavily on data to guide its decisions on adjusting interest rates.

Rising interest rates increase the opportunity cost of holding gold since it doesn’t provide any yield. This dynamic has weighed on gold prices in recent years, with the precious metal seeing consistent gains mainly on expectations of forthcoming rate cuts in 2024.

Copper prices decline due to a pessimistic economic forecast

Copper prices rebounded modestly on Wednesday following a recent decline, driven by increasing worries about reduced demand in the upcoming months.

Copper futures for March delivery increased by 0.3%, reaching $3.7717 per pound, yet they have declined over 2% since the beginning of 2024.

Poor economic data worldwide, particularly sluggish figures from leading copper importer China, have adversely affected copper prices. Concerns persist that dwindling economic activity and the impact of elevated interest rates will dampen copper demand this year.

Investors are eagerly awaiting Chinese inflation and trade data set for release on Friday to gauge the direction of demand from the world’s biggest copper consumer.


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