Gold prices stay above $2,000 amid Fed rate cut expectations

Gold prices remained steady on Wednesday, maintaining a trading range set over the past week due to ongoing expectations that the Federal Reserve may cut interest rates sooner in 2024.

Gold seemed to settle within a range of $2,000 to $2,050 an ounce, buoyed by expectations of forthcoming rate cuts. However, with rising risk appetite, investment flows into gold were constrained as traders favored higher-yield assets.

Despite this, gold stayed above the crucial $2,000 mark, and recent increases brought it nearer to the record peaks of around $2,150 per ounce.

Spot gold remained unchanged at $2,040.03 an ounce, while February gold futures edged up 0.1% to $2,053.05 an ounce by 00:25 ET (05:25 GMT). Both experienced robust growth on Tuesday due to a weakening dollar and Treasury yields dropping below significant thresholds.

March rate cut expectations continue despite warnings from Fed officials

Fed officials‘ warnings about premature rate cuts have not diminished market expectations for a rate reduction by March 2024.

Despite warnings from some Fed officials about uncertain rate cut timing due to persistent U.S. inflation, traders increased the probability of a 25 basis point rate cut in March to 67.5%.

The strength of the U.S. economy might provide the Fed with flexibility to maintain higher interest rates for an extended period.

Indeed, a lower interest rate environment typically favors gold, as elevated rates increase the opportunity cost of holding non-yielding assets like gold.

Exactly, if the U.S. economy continues to show resilience and appears to be on a path toward a soft landing, investors might favor riskier assets over safe havens like gold, limiting its potential gains.

Copper prices rise on positive China outlook and supply concerns

Copper prices hovered close to their highest levels in over four months on Wednesday. This uptrend is fueled by mounting expectations of constrained supply conditions coupled with anticipated increased demand projections for 2024.

The price of copper for futures expiring in March increased by 0.2%, reaching $3.9143 per pound.

Given major mine closures in Peru and Panama, supplies of copper are anticipated to be constrained in 2024. Concurrently, a surge in demand is expected due to the growing adoption of electric vehicles and renewable energy sources.

As Beijing plans to bolster its economy with increased infrastructure spending, Chinese demand for copper is anticipated to rise. However, the uncertainty revolves around the timing of further stimulus measures from China, posing a crucial question mark for those optimistic about copper.

The decision by China’s central bank to maintain its benchmark lending rates at historically low levels suggests that the country may have limited room to implement additional monetary stimulus measures.

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