Gold prices experienced a slight decline in Asian markets on Wednesday, reflecting a week-long pattern of steady trading amid growing uncertainties over potential U.S. interest rate cuts this year. In the industrial metals sector, copper prices saw a minor decrease after a recent surge fueled by optimism about China's economic prospects. The initial rally was a response to positive sentiment surrounding potential stimulus measures and recovery hopes in the world's largest copper consumer.
The beginning of 2024 was challenging for gold, which dropped to around $2,000 an ounce earlier in the month. This downturn was largely due to market adjustments, with traders scaling back expectations of an imminent Federal Reserve rate cut, initially anticipated as early as March 2024.
However, gold managed to regain some ground, finding support from safe-haven buying amid escalating geopolitical tensions in the Middle East. This led to the establishment of a new trading range for gold, fluctuating between $2,000 and $2,050 an ounce over the past week. Spot gold fell by 0.3% to $2,023.92 an ounce, while February gold futures experienced a marginal decline of 0.1%, settling at $2,024.65 an ounce. The strength of the U.S. dollar, which hovered near six-week highs, also exerted downward pressure on gold prices. The metal market is now closely monitoring upcoming U.S. economic data and the Federal Reserve's meeting, seeking insights into the central bank's interest rate policy for the year. Key data releases, including the fourth-quarter GDP and the PCE price index – the Fed's preferred inflation measure – are expected soon. These figures are anticipated to show a deceleration in U.S. economic growth and persistent inflation in December.
The Federal Reserve's upcoming meeting will be scrutinized for any indications of future rate cuts. While lower interest rates could eventually favor gold prices, the near-term outlook suggests a subdued performance, especially if the Fed opts to maintain higher rates for a more extended period. In 2023, gold's appeal as a safe-haven asset was reinforced by geopolitical unrest, including the Israel-Hamas conflict. The ongoing escalation in regional tensions, notably involving U.S.-led forces and the Iran-aligned Houthi group in the Red Sea, continues to support demand for traditional safe-haven assets like gold.
Meanwhile, copper futures for March delivery slightly declined by 0.2% to $3.7983 a pound, although they recorded a 0.3% rise over the week. Copper prices had earlier rebounded from near two-month lows, driven by the anticipation of further economic stimulus in China. However, copper's start to 2024 was also subdued, with recent economic data from China indicating only modest improvements in growth, continuing concerns over slowing demand that have weighed on copper prices for the past two years.
