Gold prices showed resilience on Wednesday, maintaining a trading range that has been established over the past week. These steady prices are driven by persistent expectations that the Federal Reserve will reduce interest rates earlier in 2024. Gold has seemingly settled into a trading range, fluctuating between the low-$2,000s and $2,050 per ounce. This range reflects growing optimism among investors about the likelihood of lower interest rates in the coming year. However, increased risk appetite has limited capital inflows into gold, as traders have shown a preference for higher-yielding assets.
Despite this, gold prices have managed to stay above the significant $2,000 level. The gains made this week have also brought them closer to record highs of nearly $2,150 per ounce.
As of 00:25 ET (05:25 GMT), spot gold remained flat at $2,040.03 an ounce, while gold futures expiring in February rose by 0.1% to $2,053.05 an ounce. Both instruments experienced notable gains on the previous day as the U.S. dollar dropped to its lowest point in four months, and Treasury yields fell below crucial levels.
Persistent Rate Cut Bets Despite Fed Warnings
Despite warnings from some Federal Reserve officials that expectations of an early rate cut were overstated, traders continue to anticipate that the Fed will start reducing rates as early as March 2024. Fed Fund Futures prices indicate a 67.5% probability of a 25 basis point rate cut in March, up from the 62.7% probability observed the day before. This is occurring even as some Fed officials express uncertainty regarding the timing of interest rate adjustments, particularly in light of persistent U.S. inflation.
The U.S. economy's resilience could offer the Fed more flexibility to maintain higher interest rates for a longer period.
However, gold stands to benefit from a lower interest rate environment, as higher rates increase the opportunity cost of holding the precious metal. Still, the appetite for riskier assets, along with signs of a soft landing for the U.S. economy, may restrain gold's gains and reduce demand for safe-haven assets.
Copper Prices Supported by China and Tight Supply Outlook
In the realm of industrial metals, copper prices remained near a four-month high on Wednesday due to increasing expectations of supply shortages and rising demand in 2024. Copper futures expiring in March rose by 0.2% to reach $3.9143 per pound. Supply constraints are anticipated as the year progresses, primarily due to major mine closures in Peru and Panama. This coincides with a surge in demand, driven by the growing popularity of electric vehicles and green energy sources.
Additionally, China's copper demand is expected to rise as the government implements more infrastructure spending to support economic growth. However, the timing of China's stimulus measures remains a significant uncertainty for copper market bulls.
On Wednesday, China's central bank opted to maintain its benchmark lending rates at record lows, indicating limited room for further monetary stimulus measures.
