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Wednesday, 22. May 2024

Gold prices soar to unprecedented highs surpassing $2200 amid expectations of a Federal Reserve rate cut

3angleFX

Gold prices reached a historic peak in Asian trading on Thursday, following a significant decline in the dollar subsequent to the Federal Reserve’s decision to maintain interest rates unchanged and indicate potential rate cuts later in the year.

Following the Fed meeting, the dollar experienced a decline of 0.6%, contributing to a rally in the broader commodity market. Copper prices edged closer to 11-month highs, accompanied by increases in other precious metal prices.

Gold emerged as a standout performer, reaching new highs amid expectations of lower interest rates in the near future. Spot gold surged by as much as 1.2% to reach a record high of $2,222.14 per ounce, while gold futures expiring in April spiked over 2% to hit a record high of $2,224.80 per ounce. Although both instruments pared some gains by 22:27 ET (02:27 GMT), they remained above the $2,200 level.

Gold and broader metal markets experienced some consolidation leading up to the Fed meeting.

The Fed keeps rate cut hopes alive as June bets grow

Fed Chair Jerome Powell noted recent inflation stickiness but reaffirmed the underlying trend of easing inflation. Fed officials also forecast a 75 basis point interest rate drop by the end of 2024.

The prospect of easing interest rates is favorable for gold, particularly after the metal faced pressure from rising rates in recent years.

Traders are currently pricing in a 73.4% likelihood that the Fed will implement its first rate cut as early as June, as indicated by the CME Fedwatch tool.

However, the Fed also significantly improved its forecast for the U.S. economy in 2024, now projecting growth of 2.1% compared to previous estimates of 1.4%. This optimistic outlook could potentially dampen safe haven demand for gold as confidence grows in a smooth economic transition.

On Thursday, other precious metals also experienced significant gains. Platinum futures soared 0.9% to $920.0 an ounce, while silver futures surged by 3.3% to $25.927 an ounce.

The rally in copper resumed, with purchasing managers‘ indexes (PMIs) in focus

Three-month copper futures on the London Metal Exchange climbed 0.6% to $9,053.50 per ton, while one-month U.S. copper futures advanced 0.4% to $4.1078 per pound. Both contracts were near the 11-month highs reached earlier in the week.

Attention has turned to a series of significant purchasing managers index (PMI) reports from major economies, scheduled for release in the coming days, offering further insights into the trajectory of copper demand.

This month, copper prices surged significantly due to the possibility of supply disruptions resulting from production cutbacks by China’s largest copper refiners.

 

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