Gold prices surge as 2024 begins with a focus on potential early rate cuts

Gold prices continued their upward momentum on Tuesday, building on the robust gains observed in the final trading sessions of 2023, fueled by optimism surrounding potential early interest rate reductions by the Federal Reserve in 2024.

The spot prices for gold were approximately $70 below the peak reached in early December. This decline comes as investors respond positively to the Federal Reserve’s dovish indications, increasing their expectations of potential rate cuts by the Fed as early as March 2024.

The potential upward movement of gold was tempered by the market’s anticipation of crucial U.S. economic data for December, notably the nonfarm payrolls report scheduled for release later in the week.

Spot gold increased by 0.3% to $2,069.89 per ounce, while February gold futures advanced by 0.3% to $2,078.90 per ounce as of 23:36 ET (04:36 GMT).

Nonfarm payrolls data eyed for hints on upcoming Fed rate cuts

Investors are eagerly awaiting the nonfarm payrolls data for December, set to be released this Friday. Anticipated to reveal a slowdown in the labor market, such developments could intensify calls for the Fed to contemplate early rate cuts.

Traders are indicating a strong likelihood, with over 70%, that the Fed will reduce rates by 25 basis points in March, according to the CME’s Fedwatch tool. However, before that decision, the central bank will closely monitor various economic indicators, notably inflation and labor market data.

Despite noticeable cooling in both inflation and the labor market during 2023, price levels continued to exceed the Fed’s 2% annual target. Concurrently, the labor market remained relatively robust.

In December, Fed officials cautioned that the central bank would require further moderation in both inflation and the labor market to contemplate initiating interest rate reductions ahead of schedule. They also expressed skepticism about the overly optimistic expectations for imminent rate cuts.

Indeed, while the timing remains uncertain, the prevailing expectation is that the Fed will eventually reduce interest rates in 2024. Such a move is generally favorable for gold, as higher yields increase the opportunity cost of holding non-yielding assets like gold. This dynamic had negatively impacted gold for much of 2023, but the metal staged a robust recovery in December.

Copper prices hold steady, but China’s weak data clouds the outlook

The copper market experienced a slight uptick on Tuesday, fueled by optimism surrounding stronger demand and tightening supply conditions anticipated for 2024. However, this positive sentiment was tempered by data from China, which revealed ongoing economic challenges in the largest global importer of copper.

Copper futures for March delivery increased by 0.2%, reaching $3.8973 per pound, building on a 2.1% gain observed in 2023.

China’s official purchasing managers index revealed that in December, manufacturing activity contracted more than anticipated, while non-manufacturing activity hovered near contraction levels.

The private survey indicated some resilience in the manufacturing sector; however, growth remained subdued. Additionally, employment and inflation did not show significant improvement in December.

The data suggested that business activity in the leading copper-importing country was lackluster, potentially impacting copper demand in 2024.

However, copper prices are anticipated to gain from rising demand for electric vehicles and green energy. Concurrently, supply constraints are likely due to significant mine closures in Peru and Panama.

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