Bullish Trend in Gold Market
Gold prices have witnessed a significant increase in low-volume Asian trade on Tuesday, breaking out of the December trading range. This surge is attributed to soft U.S. inflation data, which has fueled expectations of early interest rate cuts in 2024. Spot gold saw a rise of 0.5% to $2,064.16 an ounce, while gold futures for February delivery increased by 0.3% to $2,075.10 an ounce.
Factors Influencing Gold Prices
The recent weaker-than-expected reading on the PCE price index, the Federal Reserve’s preferred inflation gauge, coupled with dovish signals from the Fed’s final meeting in 2023, have ramped up prospects of the central bank commencing interest rate reductions as early as March 2024. These developments are particularly favorable for gold, as higher interest rates typically increase the opportunity cost of investing in the precious metal.
Gold Nearing Record Highs
Spot gold has now surpassed the $2,000 to $2,050 range established in December and is trading close to the record high of over $2,130 an ounce set earlier in the month.
Market Reactions to PCE Inflation Data
Following the soft PCE inflation data, traders have substantially increased bets on the Fed cutting interest rates by March 2024, with a 70% chance of a 25 basis point reduction anticipated. Goldman Sachs predicts subsequent rate cuts in the first half of 2024, with additional reductions expected later in the year.
Dollar and Treasury Yields Impact
Concurrent with these predictions, the dollar has fallen to a near five-month low, and Treasury yields have also declined, factors which have bolstered gold’s position. Furthermore, gold could benefit from deteriorating global economic conditions as tight monetary policies impact major economies.
Copper Prices and Outlook
In the industrial metals sector, copper prices have also risen in Asian trade on Tuesday, continuing recent gains. March copper futures climbed 0.4% to $3.9153 a pound. This increase is supported by a weakening dollar and optimistic demand forecasts for 2024, particularly in the context of rising electric vehicle demand. Additionally, copper supplies are expected to tighten due to major mine closures in Panama and Peru. 
