Gold prices fall as market questions possibility of interest rate cut

Gold prices fell in Asian trading on Monday, extending losses from the previous session as stronger-than-expected U.S. labor data prompted the market to revise expectations for an early interest rate cut.

Gold has had a weak start to 2024 as copper prices recovered strongly as traders reduced bets that the Federal Reserve could cut interest rates as early as March.

That view became clearer on Friday as stronger-than-expected data showed the labor market was resilient, giving the Federal Reserve more room to keep interest rates higher for some time.

Gold also saw strong profit-taking after falling sharply throughout December. The yellow metal ended 2023 up more than 10%.

Prices for February delivery were down 0.5% at $2,035.69 an ounce at 00:00 ET (05:00 GMT), while February delivery prices were down 0.4% at $2,042.25 an ounce. Both instruments fell about 0.9% in the first week of 2024.

U.S. inflation in focus after nonfarm payrolls surprise
The market is currently fully focused on US inflation (CPI) data for December, which is expected to be released this Thursday.

The data comes after a strong non-farm payrolls report, which is expected to show month-on-month results.

Any sign of stubborn inflation bodes poorly for expectations of an early rate cut by the Fed, as the labor market and inflation are two key points that the central bank needs to consider when regulating monetary policy.

The Fed also warned that any inflation concerns and signs of a strengthening labor market could prevent it from cutting interest rates soon.

It showed traders had withdrawn their expectations for a rate cut in March. Traders now see a roughly 63% chance of a 25 basis point rate cut in March, down from more than 73% chance priced in last week.

A longer period of higher interest rates could signal greater short-term pressure on gold, which has been hammered by rising interest rates for much of 2023. While the Federal Reserve is still expected to cut interest rates later this year, ING analysts said they expect gold to see a rate cut later this year. Start cutting back in May, not March.

High interest rates drive up the opportunity cost of investing in gold, which is unprofitable.

Weak start to 2024 as copper prices rise and China sends more signals
Among industrial metals, copper prices edged higher on Monday after falling sharply in the first week of 2024.

March delivery price rose 0.3% to $3.8128 per ounce, after falling 2.2% last week.

Prices were affected by a stronger U.S. dollar and weak PMI data from several major economies, especially top importer China.

China is expected to release more economic indicators this week, with data due on Friday. Chinese copper imports will be a major focus for red metal traders.