Gold Prices Steady as Investors Await Inflation Data Amid Fed Interest Rate Speculation
Gold prices remained range-bound on Tuesday, as the precious metal continued to face pressure from the strength of the dollar. Investors eagerly awaited the release of inflation data, which is expected to play a significant role in the Federal Reserve’s decision on interest rates.
In recent days, gold had settled into a trading range of $2,000 to $2,050 per ounce, as traders adjusted their expectations of an early rate cut by the Fed. Several Fed speakers cautioned last week that there was no rush to reduce interest rates, citing concerns about rising inflation.
During Asian trade, the dollar edged higher, further contributing to gold’s stability. The yellow metal held steady at $2,020.06 per ounce, while futures expiring in April remained flat at $2,033.45 per ounce.
Later on Tuesday, market watchers anticipated the release of CPI inflation data for January, which was predicted to show a decline. However, the reading was also expected to remain above the Fed’s target of 2% per year, leaving little incentive for the central bank to consider early rate cuts. This unfavorable scenario for gold is due to the fact that higher interest rates increase the opportunity cost of holding bullion, which offers no yield.
The market has been progressively lowering expectations for rate cuts in March and May, now only foreseeing a 45% chance of a 25 basis point cut in June. As a result, spot prices for gold were trading just $20 higher than the key support level of $2,000 per ounce. Analysts suggest that this level could be tested in the near-term, particularly following a stronger-than-expected inflation reading.
Shifting focus to industrial metals, copper prices rebounded from a three-month low after a massive copper deposit was discovered in Zambia. Last week, concerns about increased supply had led to significant losses for copper. However, experts indicate that it will likely take several years to fully develop the Zambia deposit into a functioning mine, meaning any potential supply increase will not be immediate.
For copper demand, investors are now eagerly awaiting more economic readings from major economies throughout the week. Additionally, fourth quarter GDP data is scheduled to be released later this week, which is expected to provide clearer insights into copper’s demand outlook.
Overall, the gold market continues to face headwinds from the strength of the dollar, alongside investors’ cautious stance amid inflation concerns. As interest rate speculation looms, gold remains in a precarious position, with the $2,000 per ounce support level potentially in jeopardy. On the other hand, copper rebounded from losses, driven by the recent discovery in Zambia, but the actual supply increase is not expected to materialize in the near future. Investors will closely monitor economic data and GDP readings for further guidance on copper demand.
Analyst comment
Positive news for copper due to rebound from losses after the discovery of a copper deposit in Zambia. Gold prices remain steady but face headwinds from the strength of the dollar and cautious investor stance amid inflation concerns. The $2,000 per ounce support level for gold is potentially in jeopardy due to interest rate speculation.
