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Gold prices steady above $2,000 as Fed rate cut bets persist

Published 12/20/2023, 01:06 AM
Updated 12/20/2023, 01:06 AM
© Reuters. Gold prices steadied on Wednesday, sticking to a trading range established over the past week amid persistent bets that the Federal Reserve will trim interest rates earlier in 2024.

The yellow metal appeared to have established a trading range of low-$2,000 to $2,050 an ounce, amid growing optimism over lower interest rates in the coming year. But increased risk appetite saw capital flows into gold remain limited, as traders piled into higher-yielding assets.

Still, gold prices remained above the coveted $2,000 level, with this week’s gains also putting them closer to record highs of near $2,150 an ounce.

Spot gold was flat at $2,040.03 an ounce, while gold futures expiring February rose 0.1% to $2,053.05 an ounce by 00:25 ET (05:25 GMT). Both instruments saw strong gains on Tuesday, as the dollar sank to four-month lows and Treasury yields fell below key levels.

March rate cut bets persist even as Fed officials warn otherwise

Warnings from some Fed officials- that bets on an early rate cut from the central bank were overstated- did little to deter expectations that the Fed will begin trimming rates by as soon as March 2024.

Fed Fund Futures prices showed traders pricing in a 67.5% chance for a 25 basis point cut in March, up from the 62.7% chance seen a day earlier. This came even as some Fed officials warned that the Fed remained uncertain over its timing of interest rates, amid sticky U.S. inflation.

Resilience in the U.S. economy could also give the Fed more headroom to keep rates higher for longer.

Still, gold stands to benefit from a lower interest rate environment, given that higher rates push up the opportunity cost of investing in the yellow metal.

But gains in gold may be held back by increased risk appetite, especially if the U.S. economy exhibits more signs of heading for a soft landing. Such a scenario is also expected to sap safe haven demand for the yellow metal.

Copper prices benefit from China bets, tight supply outlook

Among industrial metals, copper prices hovered near a more than four-month high on Wednesday, amid growing expectations of tighter supplies and increased demand in 2024.

Copper futures expiring in March rose 0.2% to $3.9143 a pound.

Supplies of the red metal are expected to be limited going into 2024, after major mine closures in Peru and Panama. This is expected to coincide with an increase in demand, especially with the rising popularity of electric vehicles and green energy sources.

Chinese copper demand is also expected to increase as Beijing rolls out more infrastructure spending to support the economy. But the timing of more China stimulus remains a key point of uncertainty for copper bulls.

China’s central bank kept its benchmark lending rates on hold at record lows on Wednesday- signaling that the country has limited headroom to unlock more monetary stimulus.

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