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Gold prices recover some lost ground; CPI awaited for more rate-cut cues

Published 01/11/2024, 12:25 AM
Updated 01/11/2024, 12:25 AM
© Reuters. Gold prices rose in Asian trade on Thursday, recovering slightly from a rough start to 2024, with focus now squarely on upcoming U.S. inflation data for more cues on the Federal Reserve’s plans to cut interest rates.

The yellow metal was still reeling from steep losses over the first week of January, as traders questioned whether the Fed will begin trimming interest rates by as soon as March 2024.

Uncertainty over rate cuts spurred a sharp rebound in the dollar, which also weighed on gold. But the greenback gave up a bulk of its recent gains this week, while traders also largely maintained bets on a March rate cut.

This allowed gold prices some relief, although they remained within a $2,000-$2,050 an ounce trading range seen through most of December.

Spot gold rose 0.4% to $2,031.78 an ounce, while gold futures expiring in February rose 0.4% to $2,035.80 an ounce by 00:09 ET (05:09 GMT). Both instruments were down about 1.7% so far in 2024, but were sitting on an over 10% gain from the past year.

CPI data in focus, traders hold March rate-cut bets

Markets were now awaiting key U.S. consumer price index (CPI) data for December, which is due later in the day. Headline CPI inflation is expected to have increased slightly, while core CPI is expected to fall further.

Inflation is expected to remain well above the Fed’s 2% annual target which, coupled with recent signs of resilience in the labor market, bode poorly for expectations of early interest rate cuts.

But traders appeared to have largely maintained their expectations for a 25 basis point cut in March, despite trimming them slightly last week. The CME Fedwatch tool showed traders pricing a 67.1% chance for a cut in March, up from the 60.8% seen a day ago and the 64.7% seen last week.

Bets on early rate cuts saw a resurgence this week after several Fed officials stated that high interest rates were acting as expected in bringing down inflation. But they also offered scant cues on when the Fed could begin cutting rates.

General consensus is for at least 100 to 150 bps of rate cuts this year.

Lower rates bode well for gold, which suffers from higher opportunity costs in a high-rate environment, given that it offers no yield.

Copper rebounds from new year losses, China data awaited

Among industrial metals, copper prices rose sharply on Thursday, amid easing pressure from a stronger dollar.

Copper futures expiring March rose 0.6% to $3.8112 a pound.

But the red metal was still nursing some losses from a soft start to 2024, as a swathe of weak economic readings from across the globe pushed up concerns over slowing manufacturing activity- which spells weaker copper demand.

Focus is now on trade and inflation figures from China, due this Friday, for more economic cues on the world’s largest copper importer.

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