Amidst growing speculation that the Federal Reserve will maintain higher interest rates for an extended period, gold prices declined during Asian trading on Monday. Nevertheless, the yellow metal managed to remain above crucial levels due to safe-haven demand and short-term dollar weakness.
In January, traders unwound bets that the Fed would start lowering interest rates as early as March 2024, which led to a sharp increase in profit-taking and a sharp decline in gold prices. This unravelling reached a boiling point late last week as the yellow metal nearly broke below the $2,000 per ounce mark.
However, gold was well-liked at that level, mostly because to rising demand for safe haven assets in the wake of escalating hostilities in the Middle East. Bullion prices were also helped by some short-term profit-taking in the dollar, which dropped on Monday after hitting a low of more than one month.
But the possibility of higher U.S. rates for a longer period of time continued to put pressure on gold.
Gold futures expiring in February dropped 0.2% to $2,024.30 an ounce by 00:31 ET (05:31 GMT), while spot gold declined 0.3% to $2,022.91 an ounce.
Markets revers rate-cut wagers from March; the Fed is now likely to retain
In contrast to early expectations for a rate decrease, on Monday that traders were now pricing in a higher possibility that the Fed will leave rates constant in March.
The tool indicated a 52.9% probability of unchanged interest rates from the 19% observed the previous week, a significant increase. A 25 basis point cut was also priced in by traders at 46.2%, a significant decrease from the 76.3% possibility observed one week prior.
The change in outlook coincided with a chorus of Fed officials saying that rate decreases were not appropriate at this time, particularly given the persistently sticky inflation. It is also generally anticipated that the central bank will hold rates when it meets the following week.
However, this week’s important U.S. economic indicators are due before that. The PCE price index, the Fed’s favoured inflation indicator, is due on Friday, while fourth-quarter GDP data is due on Thursday.
Both figures are likely to have an impact on the Fed’s rate-setting decisions this year. The timing and extent of the Fed’s prospective rate reduction are yet unknown, but gold is predicted to eventually profit from them.
Copper drifts lower, but China’s prognosis is still bleak
The price of copper, one of the industrial metals, decreased little on Monday and held onto the majority of its January losses.
March-expiring copper futures decreased 0.4% to $3.7752 a pound and had already dropped 3% in January.
Growing scepticism about China, the world’s largest importer, seeing an economic rebound after the nation posted disappointing GDP numbers for the fourth quarter hammered the red metal.
On Monday, there were no signs of change in the perception of China as the People’s Bank of China maintained record low benchmark lending rates, indicating that it had little room to further ease policy and promote growth.
This week will see a plethora of purchasing managers index readings from several major economies outside of China, all of which are predicted to demonstrate persistent deterioration in business activity.