In a climate of early speculation regarding a potential interest rate cut, gold prices experienced a decrease during Asian trade, further extending losses from the previous session. This decline was prompted by stronger-than-expected U.S. labor market data, causing markets to reevaluate expectations of an early interest rate reduction.
Following a significant rebound in the dollar, the precious metal had a sluggish start to 2024. The increase in the dollar came as investors tempered their expectations of the Federal Reserve lowering interest rates until March.
This notion gained strength on Friday with unexpectedly robust non-farm payroll data, exhibiting labor market flexibility and providing the Fed with more room to keep interest rates higher for a longer period.
Gold, after witnessing a substantial decline throughout December, saw profit-taking after closing the year with over 10% gains in 2023.
Spot gold retreated by 0.5% to $2,035.69, while February gold futures, expiring in February, dropped by 0.4% to $2,042.25. Both instruments experienced approximately a 0.9% loss in the first week of 2024.
Focus Shifts to U.S. Inflation after Non-Farm Payrolls Surprise
With markets now eyeing the December U.S. Consumer Price Index (CPI) inflation data, set to be released on Thursday, attention has shifted to inflation in the wake of a robust employment report.
Given that the labor market and inflation are two crucial factors considered by the central bank in shaping monetary policy, any indication of stickiness in inflation would be a negative signal for early interest rate cuts.
The CME FedWatch Tool indicates a reduction in investor expectations for an interest rate cut in March. Investors, who last week priced in a probability of over 73% for a 25-basis-point cut in March, now assign a probability of approximately 63%.
Higher and longer-term interest rates could imply closer-term pressure on gold, which has already been impacted by rising rates for much of 2023. Analysts at ING have withdrawn their expectations of a cut from March to May, anticipating a rate cut by the end of this year.
Elevated interest rates are increasing the opportunity cost of investing in non-yielding bullion.
Copper Begins to Recover After a Weak Start to 2024; New Data from China Awaited
Among industrial metals, copper prices, which had sharply declined in the first week of 2024, showed a slight rebound today.
Copper futures expiring in March increased by 0.3% to $3.8128 after experiencing a 2.2% decline last week.
Prices have been rattled by a strong dollar and weak Purchasing Managers’ Index (PMI) data from major economies, especially China, the largest importer. China is set to release new economic data, including inflation and trade figures, this week, with a focus on copper imports serving as a key point of interest for red metal investors.
source: tr.investing.com / prepared by Melisa Beğiç