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Gold prices rise even as Fed shoots down early rate-cut hopes

Published 02/01/2024, 12:44 AM
Updated 02/01/2024, 12:44 AM
© Reuters. Gold prices rose on Thursday and were undeterred by the Federal Reserve stating that it will likely keep interest rates higher for longer, while safe-haven buying amid an ongoing conflict in the Middle East also aided the yellow metal. 

The Fed’s comments spurred a sharp reversal in risk-driven markets, particularly stocks, on Wednesday. This in turn fueled increased safe-haven demand for gold. The yellow metal was also aided by increased demand as a conflict between U.S.-led forces and the Yemen-based Houthi Group worsened. 

Spot gold rose 0.3% to %2,045.21 an ounce, while gold futures expiring in March fell 0.2% to $2,062.40 an ounce by 00:22 ET (04:22 GMT). The disparity highlighted more near-term demand for physical gold.

Further gains in the yellow metal were held back by a sharp rebound in the dollar, which traded close to seven-week highs. 

Fed’s Powell downplays March rate cuts; Markets see cuts in May 

Fed Chair Jerome Powell said it was too soon for the central bank to consider trimming interest rates, especially as soon as March, given that inflation was still running sticky. 

But this hawkish rhetoric was somewhat countered by Powell still leaving the door open for eventual reductions in interest rates this year. Powell also noted continued resilience in the U.S. economy, and that he expected inflation to fall further in the coming months.

Powell’s comments fueled increased bets that the Fed will begin trimming rates by May. The CME Fedwatch tool showed traders pricing in a 63% chance for a 25 basis point cut in the Fed’s May meeting. The tool also shows traders pricing in greater possibility that the U.S. benchmark rate will end 2024 in a range of 3.75% to 4.0%, down from its current high of 5.25% to 5.5%. 

Goldman Sachs analysts forecast a May rate cut, and maintained their outlook that the Fed will cut rates a total five times in 2024. 

The prospect of lower lending rates bodes well for gold, given that higher rates ramp up the opportunity cost of buying bullion. 

Copper prices cool after rallying to 1-mth high, China outlook mixed

Among industrial metals, copper prices fell on Thursday as traders locked-in profits from a rally to one-month highs in the prior session. 

Copper futures expiring in March fell 0.6% to $3.8705 a pound.

A recent rally in the red metal was driven chiefly by increased optimism over China, as the world’s largest copper importer rolled out more stimulus measures to support an economic recovery. 

But data prints for January showed sustained economic weakness. Official purchasing managers index data released on Wednesday showed the manufacturing sector remained in contraction, while a private survey released on Thursday pointed to stagnating growth in the sector. 

A deepening crisis in China’s property sector also dented sentiment, after beleaguered developer China Evergrande Group (HK:3333) was ordered by courts to liquidate.

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The rest of the world is becoming fearful of the implications for the trade value of the US dollar. Perhaps more poignantly, people are becoming weary of the continued acceptance of the dollar as a currency to trade in. What if your trade partner is unwilling or unable to take dollars in exchange for his goods and services? This is totally abnormal. Wall Street Market manipulators would have taken the dollar down $200 in short order, with threats of higher interest rates for longer. The only explanation is, other central banks are disgorging their dollar reserves for gold. Sad days, these are...
...would have taken *gold* down...
Just wait. The $USD is moving up and $gold is down $7.00.
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