Gold Prices Decline Amid Extended Higher Rate Expectations

Asian trade saw gold prices drop on Monday as expectations for prolonged higher interest rates from the Federal Reserve (Fed) grew, but the yellow metal stayed above key levels on safe-haven demand and the US dollar’s near-term weakness.

Spot gold eased by 0.38% to $2,021.88 an ounce, while gold futures for February delivery declined by 0.28% to $2,023.60.

In January, profit-taking heavily impacted bullion prices as traders eased their views on the Fed starting interest rate reductions by March 2024. The move reached a critical point late last week when the price of gold neared breaking below the $2,000 per ounce threshold.

However, gold strengthened at that level, primarily due to better safe-haven demand amid rising tensions in the Middle East. Some near-term profit-taking in the greenback, which declined to more than a one-month low on Monday, also supported the yellow metal.

Still, gold continued to be pressured by expectations of extended higher interest rates in the US.

The CME FedWatch tool on Monday showed traders are expecting the Fed to leave interest rates unchanged in March rather than cutting them as initially anticipated.

The tool indicated a significant rise to a 52.9% likelihood of the US central bank maintaining rates, compared to the 19% chance observed the previous week.

Traders also estimated a 46.2% probability for a 25 basis point (bp) cut, a steep drop from the 76.3% chance logged a week earlier.

The forecast change came as several Fed officials said it was premature for the central bank to contemplate reducing rates, particularly during a sticky inflation. The Fed is anticipated to hold interest rates steady at its meeting next week.

Copper Slips as China’s Weak Outlook Persists

In industrial metals, copper prices experienced a modest decline on Monday and kept a significant portion of the losses incurred so far in January.

Copper futures for March contracts eased by 0.55% to $3.77 per pound and have lost 3.00% so far this month.

The red metal faced challenges due to increased uncertainties about an economic rebound in China, the top copper importer, following disappointing fourth-quarter gross domestic product (GDP) data.

On Monday, confidence in China did not improve as the People’s Bank of China (PBOC) maintained its benchmark lending rates at historic lows. The decision signaled a limited headroom for more policy easing to bolster economic growth.

Outside of China, a series of purchasing managers index (PMI) data from certain major economies are anticipated this week, which are expected to present continued weakness in business activity.