Gold prices dipped during Monday’s Asian trading session, with spot gold decreasing by 0.3 percent to hit $2,022.91 per ounce as of 05:31 GMT. Additionally, February gold futures declined by 0.2 percent to $2,024.30.
Other metals have also recorded decreases. For instance, March copper futures fell by 0.4 percent to $3.7752 a pound. This represents a 3 percent decline this month.
This new development comes as the market speculates that the U.S. Federal Reserve (Fed) will likely maintain elevated interest rates for an extended period.
Shift in market expectation
Initially, the market anticipated the Fed might start interest rate cuts as early as March 2024. Nonetheless, last week saw a significant change, with gold prices nearly dropping below $2,000 per ounce.
The CME Fedwatch tool has indicated a higher probability that the Fed will maintain current interest rates in March instead of reducing them. The tool displayed a 52.9 percent likelihood of steady rates, significantly increasing from the 19 percent probability observed last week. The odds of a 25 basis point cut dropped dramatically from 76.3 percent to 46.2 percent.
This adjustment in expectations follows comments from Fed officials suggesting it’s premature to consider rate cuts, especially given persistent inflation. The U.S. central bank is expected to maintain its current rate stance in its upcoming meeting, scheduled for January 30 to 31.
Key U.S. economic indicators are also slated for release this week, including fourth-quarter GDP data and the PCE price index, which is the Fed’s preferred inflation measure. All of these could influence the Fed’s decision.
Read: Declining demand drives oil prices down
Still above $2,000 level
Last week, the yellow metal saw its most significant weekly decline in six weeks, falling about 1 percent. Despite this pressure, gold prices still found robust support at the $2,000 level. This is primarily attributed to heightened safe-haven demand amid escalating conflicts in the Middle East. Moreover, the U.S. dollar’s retreat from a more than one-month low on Monday further buoyed gold prices.
In a recently released forecast by J.P. Morgan Research, gold prices are predicted to hit $2,175 per ounce by the last quarter of this year. It will peak at $2,300 in the third quarter of 2025. In December 2023, the yellow metal hit an all-time high, reaching $2,135.39 per ounce.
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