Gold surges above $2,000 as Fed hints at rate cuts in 2024

Gold prices surged in Asian trade on Thursday, building on gains from the previous session following the Federal Reserve’s announcement that it has concluded interest rate hikes and anticipates lower borrowing costs in 2024.

The Federal Reserve, as anticipated, maintained interest rates and hinted at a more substantial-than-expected rate cut in 2024, pointing to significant advancements in achieving its 2% annual inflation target.

The Federal Reserve’s decision stirred speculation about the timing of its anticipated cuts, leading to significant losses in the dollar, nearing a four-month low.

Gold regained the $2,000 per ounce level as the anticipation of reduced U.S. interest rates increased the appeal of the precious metal.

Spot gold increased 0.2% to $2,031.88 an ounce, while gold futures for February surged over 2%, reaching $2,046.45 an ounce by 23:50 ET (04:50 GMT).

Gold, while showing strength, remained below the record highs of over $2,100 an ounce reached earlier this month, reflecting market uncertainty about when the Federal Reserve will start reducing interest rates.

Fed adopts dovish stance, but timing for rate cuts remains uncertain

The Federal Reserve announced that interest rates had peaked at 5.4%, projecting at least three rate cuts in 2024 to reach 4.6%. Fed Chair Powell expressed caution over declaring victory over inflation but anticipated a lower inflation outlook for 2023.

The Fed’s dovish stance heightened speculation on the timing of rate cuts, with traders indicating a 70% chance of a 25 basis points rate cut in March 2024 based on Fed fund futures prices.

Traders are also weighing a 67% chance for an additional 25 basis point cut in May.

But the prospect of rate cuts is expected to be tempered by uncertainties in the coming months, particularly as a robust U.S. economy could potentially lead to inflationary pressures. Recent data indicates that consumer price index inflation held steady in November, and the labor market continues to display resilience.

Higher interest rates raise the opportunity cost of investing in gold, contributing to the yellow metal’s struggles over the past year.

The potential for lower interest rates coincides with growing optimism about a soft landing for the U.S. economy. However, if global economic conditions, especially in Europe and China, worsen, it could fuel safe-haven demand for gold.

Copper prices flat amid China economic concerns

Copper prices remained steady on Thursday, with worries about an economic slowdown in China tempering optimism linked to lower interest rates.

Copper futures for March dipped 0.1% to $3.8332 per pound, maintaining a 1.3% rally from Wednesday, primarily influenced by a weaker dollar.

China’s economic concerns persisted in November, with weak readings indicating disinflation and subdued lending activity, fueling fears of a slowdown in copper demand.

Eyes are now on additional economic indicators from China scheduled for release this Friday, specifically focusing on industrial production and retail sales data.

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