Gold prices found some stability in Asian trading on Wednesday, holding steady after briefly reaching key highs. The initial surge in gold prices was attributed to the anticipation of no further rate hikes by the Federal Reserve, leading to increased investments in the precious metal.
However, the momentum in gold prices seemed to have tempered following the release of the minutes from the Fed’s late-October meeting on Tuesday. The minutes revealed that the central bank remains committed to its higher-for-longer outlook on interest rates, causing some uncertainty in the markets.
Despite the prevailing belief that the Fed won’t implement additional rate hikes, the minutes prompted traders to reconsider their expectations for a rate cut in March 2024, as indicated by CME Group’s Fedwatch tool.
As of the latest update, spot gold remained flat at $1,999.39 per ounce, while gold futures expiring in December steadied at $2,000.65 per ounce by 00:21 ET (05:21 GMT). On Tuesday, futures had reached as high as $2,009.80 per ounce before retreating in response to the Fed minutes.
The recent rally in gold prices was fueled by weak U.S. labor and inflation data, leading investors to speculate that the Fed had concluded its interest rate hikes. Nevertheless, the outlook for gold remains uncertain, particularly with the Fed signaling its intent to maintain higher rates for an extended period. The central bank has communicated its plan to keep rates above 5% until at least the end of 2024.
The extended period of higher interest rates poses a challenge for gold, as it increases the opportunity cost of investing in the metal. This dynamic has weighed on gold prices over the past year during the Fed’s aggressive rate hike cycle.
Analysts anticipate that the impact of higher rates will continue to limit gold gains in the coming months unless the Fed signals a clear plan to ease its policy. The U.S. dollar, which recovered slightly from near three-month lows on Wednesday, also contributed to the pressure on gold prices.
Despite these challenges, gold has experienced a notable gain of nearly 10% in 2023, driven in part by safe-haven demand amid worsening global economic conditions.
In the broader metal market, copper prices dipped from a two-month high on Wednesday as traders awaited further economic cues from China, a key importer of the industrial metal. Copper futures fell by 0.4% to $3.7897 per pound.
Reports suggesting potential stimulus measures from Beijing, particularly for the property sector, influenced market sentiment. However, traders are now waiting for concrete actions from the Chinese government. Additionally, concerns about global copper supply disruptions persist following major mine closures in Peru and Panama, which are expected to tighten markets in the coming months.
