Gold prices found themselves on steadier ground despite a week of steep declines. Growing skepticism about early interest rate cuts by the Federal Reserve has weighed heavily on the precious metal, causing it to tumble to a one-month low earlier in the week. However, it managed to find some support around the $2,000 an ounce level thanks to safe-haven demand. One of the primary reasons for gold's recent struggles has been the shift in market sentiment regarding the timing of interest rate cuts by the Federal Reserve. Strong economic data and hawkish-leaning comments from Fed officials have led traders to reduce their expectations of a rate cut in March, causing them to pivot into the dollar.
This change in sentiment has put pressure on gold, as higher interest rates increase the opportunity cost of holding non-yielding assets like bullion. According to CME's Fedwatch tool, the probability of a 25 basis point rate cut in March has decreased to 51.9%, down significantly from 70.2% the previous week.
The stronger-than-expected retail sales data in the United States has further fueled the belief that the U.S. economy remains resilient, prompting traders to reconsider their rate cut bets. Atlanta Fed Reserve President Ralph Bostic has also echoed these sentiments, indicating that he anticipates rate cuts to commence only in the third quarter of 2024.
Geopolitical Tensions Offer Support
Despite the pressure from rate cut doubts, gold has found some solace in safe-haven demand driven by escalating geopolitical tensions. The conflict in the Middle East has contributed to this demand. Additionally, tensions have flared between Iran and Pakistan following a series of strikes. As of 00:35 ET (05:35 GMT), spot gold was down 0.1% at $2,020.91 an ounce, while gold futures expiring in February remained flat at $2,022.75 an ounce. Both instruments were set to experience losses of approximately 1.4% for the week.
Copper Prices Weaken Amid China Concerns
In the realm of industrial metals, copper prices experienced a slight decline and were poised for a muted finish to the week. Lingering worries over China, the world's top copper importer, have continued to exert downward pressure on copper. Copper futures expiring in March dipped 0.3% to $3.7477 a pound. The year began on a somber note for copper prices, with fresh selling pressure emerging this week due to softer-than-expected economic growth figures from China. The concerns extend to the outlook for copper demand, especially with global electric vehicle demand showing signs of decline.
As such, the uncertainty surrounding rate cuts, geopolitical tensions, and economic data from China are likely to keep both gold and copper markets on edge in the weeks to come.
