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Gold prices cross $2,050 amid safe-haven demand, rate-cut hopes

Published 01/15/2024, 12:47 AM
Updated 01/15/2024, 12:47 AM
© Reuters. Gold prices rose in Asian trade on Monday, recouping most of their new year’s losses as persistent tensions in the Middle East drove safe-haven demand, while traders still held out for early interest rate cuts by the Federal Reserve.

The yellow metal saw increased demand as a conflict between the U.S. and the Iran-aligned Houthi group escalated over the past week, marking a potential spillover in the Israel-Hamas war.

Mixed U.S. inflation readings also saw traders largely maintain their bets that the Fed could begin cutting interest rates by as soon as March 2024, which kept the dollar subdued and spurred some flows into rate-sensitive assets.

Spot gold rose 0.2% to $2,053.88 an ounce, while gold futures expiring in February rose 0.3% to $2,057.85 an ounce by 00:27 ET (05:27 GMT).

More Fed cues on tap this week, traders maintain March cut bets

Traders appeared to have largely maintained their expectations that the Fed will cut rates by 25 basis points in March, at least according to the CME Fedwatch tool. The tool showed traders pricing in a 70% chance of a March cut, up from a 64% chance seen last week.

Mixed inflation data furthered this notion. While consumer price index inflation grew slightly more than expected in December, producer price index inflation fell more than expected.

Focus was now on a slew of addresses from Fed officials this week, which are expected to offer more cues on the bank’s outlook. But several of Fed officials have downplayed hopes on early rate cuts.

Uncertainty over the path of U.S. interest rates is likely to keep gold trading rangebound in the near-term. But the yellow metal stands to benefit from any decreases in lending rates this year.

Copper prices rebound but China rate fake-out dents outlook

Among industrial metals, copper prices rose sharply on Monday following a weak start to the new year, although negative signals from China dampened the outlook for the red metal.

Copper futures expiring in March rose 0.8% to $3.7648 a pound.

China’s central bank unexpectedly kept its medium-term lending rates on hold on Monday, indicating that the world’s largest copper importer had limited headroom to further loosen monetary conditions and support a fragile economic recovery.

Monday’s move also points to no changes in China’s benchmark loan prime rate, heralding limited levels of monetary stimulus for the economy, which have so far done little to shore up growth.

Chinese trade data on Friday also showed a drop in copper imports in December, amid high inventory and increased domestic output.

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