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Gold prices fall on rate-cut doubts; Copper hit by China weakness

Published 01/17/2024, 12:35 AM
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Investing.com-- Gold prices extended losses in Asian trade on Wednesday as hawkish signals from Federal Reserve officials raised more doubts over early interest rate cuts by the central bank, while a rebound in the dollar also dented prices.

Among industrial metals, copper prices came close to a one-month low after middling economic growth figures from top importer China.

Gold prices tumbled from the $2,050 an ounce level on Tuesday after Fed Governor Christopher Waller flagged a cautious approach to rate cuts and said that recent resilience in the U.S. economy will likely delay any potential reductions.

His comments sent the dollar to a one-month high, while also triggering a sharp bounce in Treasury yields, with the 10-year rate crossing the 4% mark.

The prospect of higher-for-longer U.S. interest rates largely offset recent safe-haven demand for gold, and saw traders pivot away from the yellow metal and into the dollar.

Spot gold fell 0.4% to $2,019.70 an ounce, while gold futures expiring in February fell 0.4% to $2,022.90 an ounce by 00:20 ET (05:20 GMT). Both instruments tumbled over 1% each on Tuesday.

More US economic cues awaited as traders trim March rate-cut bets

Markets were now focused squarely on upcoming industrial production and retail sales data for December, which is due later on Wednesday. Any signs of strength in the U.S. economy, particularly consumer spending, gives the Fed more headroom to keep rates higher for longer.

Traders were seen slightly trimming their bets on a March rate cut by the central bank, according to the CME Fedwatch tool. Markets see a 62.8% chance of a 25 basis point cut, down from 66.1% seen a day earlier.

Higher rates push up the opportunity cost of investing in bullion, and limit capital flows into gold as traders seek better yields in debt. This trend had weighed on the yellow metal over the past two years.

While gold saw some safe haven demand amid increasing military action in the Middle East, this was also offset by traders instead seeking safe haven in the dollar.

Still, the yellow metal stands to benefit from an eventual decline in U.S. interest rates this year.

Copper sinks as China GDP disappoints

Copper futures expiring in March fell 0.5% to $3.7492 a pound, and were within sight of their weakest levels since early-December.

The red metal was hit with a fresh wave of selling after data showed China’s gross domestic product grew slightly less than expected in the fourth quarter.

While GDP growth still beat a 5% government target for 2023, it was also driven chiefly by a low base for comparison from 2022. Other weak indicators for December also set a weak tone for China going into 2024.

Copper prices came under renewed pressure in recent weeks as markets feared that worsening economic conditions in China will eat into demand. Declining global demand for electric vehicles also cast a pall over expectations for copper demand.

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