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Gold Prices Dip Amid Expectations of Prolonged Higher Interest Rates

22.01.2024 15:45  Autor: InvestCentrum  Sekce: Burzovní zpravodajství  Tisk

Gold prices declined in Asian trade on Monday due to rising expectations that the Federal Reserve will maintain higher interest rates for an extended period. However, some safe-haven demand and short-term dollar weakness helped support the yellow metal above key levels.

In January, bullion prices faced significant profit-taking as traders reversed their bets on the Federal Reserve initiating interest rate cuts by March 2024. This unwinding reached a critical point late last week when the price of gold approached the $2,000 an ounce level.

However, gold managed to find robust support at the $2,000 per ounce level, primarily driven by heightened safe-haven demand amid escalating conflicts in the Middle East. Additionally, some short-term profit-taking in the dollar, which declined from a one-month high on Monday, contributed to the strength in gold prices.

Despite these supportive factors, gold continued to face downward pressure due to the expectation of prolonged higher interest rates in the United States.

Spot gold prices slipped 0.3% to $2,022.91 per ounce, and gold futures expiring in February dipped 0.2% to $2,024.30 per ounce by 00:31 ET (05:31 GMT).

Market expectations shift, March rate cut by Fed less likely

Traders are currently assigning a higher probability to the Federal Reserve maintaining steady interest rates in March, shifting away from the initial expectations of a rate cut, according to the CME Fedwatch tool.

The CME Fedwatch tool now suggests a 52.9% chance that the Federal Reserve will maintain steady interest rates in March, marking a significant rise from last week’s 19%. Additionally, the probability of a 25 basis point cut has decreased to 46.2%, down from the 76.3% chance observed a week ago.

Traders‘ altered expectations align with statements from multiple Fed officials, emphasizing it’s premature to contemplate rate cuts, especially with persistent inflation. The central bank is anticipated to maintain interest rates during its upcoming meeting.

Ahead of the upcoming meeting, crucial U.S. economic indicators are on the horizon this week, including fourth-quarter GDP data on Thursday and the PCE price index— the Fed’s preferred inflation measure—scheduled for release on Friday.

Key U.S. economic readings this week, including fourth-quarter GDP and the PCE price index, will likely impact the Federal Reserve’s decisions on interest rates. The uncertainty surrounding potential rate cuts continues to influence the gold outlook.

Copper dips as China’s economic concerns persist

Copper prices dipped slightly on Monday, maintaining most of their losses for January.

Copper futures for March dropped 0.4% to $3.7752 per pound, reflecting a 3% decline for the month.

Copper faced challenges as concerns grew about an economic rebound in China, exacerbated by the country’s below-expectation GDP figures for the fourth quarter.

The People’s Bank of China’s decision to maintain benchmark lending rates at record lows indicated limited room for further policy easing, contributing to ongoing concerns about China’s economic outlook.

Upcoming purchasing managers index readings from major economies this week are anticipated to reveal continued weakness in business activity, extending concerns beyond China’s economic challenges.

 

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