Gold recovers after losing support; awaits CPI data

Investing.com – Gold prices rose in Asian trading on Thursday, recovering slightly after a rocky start to 2024, with focus now on upcoming U.S. inflation data for further signals on the Federal Reserve’s plan to cut interest rates.

The gold market was still reeling from the first week of January, with traders questioning whether the Federal Reserve would begin cutting interest rates as early as March 2024.

Uncertainty about interest rate cuts has driven a strong recovery in copper prices, which has also weighed on gold prices. However, the dollar gave up most of its recent gains this week, while traders largely maintained bets on a rate cut in March.

That helped gold prices retreat somewhat, although they remained trading in a range of $2,000 to $2,050 an ounce for most of December.

Prices were up 0.4% at $2,031.78 an ounce, while February expiry was up 0.4% at $2,035.80 an ounce as of 00:09 ET (05:09 GMT). Both instruments are down about 1.7% so far in 2024, but are still up more than 10% from last year.

The market is currently awaiting important data on the US Consumer Price Index (CPI) for December, which will be released later in the day. The figure is expected to rise slightly, while further declines are expected.

Inflation is expected to remain well above the Fed’s 2% annual target, which, coupled with recent signs of labor market recovery, bodes poorly for expectations of an early interest rate cut.

But traders appeared to have largely maintained expectations for a 25 basis point rate cut in March, despite a slight cut last week. The tool showed traders saw a 67.1% chance of a rate cut in March, up from 60.8% a day earlier and 64.7% last week.

Betting on an early interest rate cut resurfaced this week after some Fed officials claimed that higher rates were working as expected to curb inflation. But there aren’t many signals on when the Fed might start cutting interest rates.

The general consensus is for at least 100 to 150 basis points of interest rate cuts this year.

Lower interest rates bode well for gold, which in a high-rate environment incurs a higher opportunity cost because it doesn’t generate returns.

Among industrial metals, copper prices rose sharply on Thursday as pressure from a stronger dollar eased.

Prices for March expiration rose 0.6% to $3.8112 per pound.

However, the red metal still suffered some losses from a weak start to 2024 as a series of weak economic indicators around the world raised concerns about slowing production activity – pointing to weak demand for copper.

For now, the focus is on data and data from China, which is due to be released this Friday, for more economic signals about the world’s largest copper importer.