Gold prices on Thursday climbed in the face of the Federal Reserve’s announcement that it is likely to keep interest rates higher for a while. Additionally, the ongoing conflict in the Middle East further bolstered demand for gold as a safe-haven asset.
The Fed’s comments led to a sharp reversal in risk-driven markets, particularly stocks, on Wednesday, fueling increased safe-haven demand for gold. The yellow metal continued to garner support as the conflict between U.S.-led forces and the Yemen-based Houthi Group escalated.
The price of gold rose 0.3% to $2,045.21 an ounce, highlighting increased near-term demand for physical gold. A rebound in the U.S. dollar, which traded close to seven-week highs, somewhat hindered further gains in the yellow metal.
Federal Reserve Chair Jerome Powell downplayed the possibility of a rate cut in March, citing sticky inflation. However, he left the door open for potential rate reductions later in the year, sparking increased speculation that the Fed may begin trimming rates by May.
This hawkish rhetoric sent traders to price in a 63% chance of a 25 basis point rate cut in the Fed’s May meeting. Goldman Sachs analysts also forecast a May rate cut, with the outlook suggesting a total of five rate cuts in 2024.
The prospect of lower lending rates is generally positive for gold, as higher rates increase the opportunity cost of buying bullion.
In contrast, copper prices fell on Thursday as traders locked in profits from a rally to one-month highs in the prior session. The rally in copper prices was driven by optimism over China, the world’s largest copper importer, as the country implemented more stimulus measures to support economic recovery. However, January data prints revealed continued economic weakness, with the manufacturing sector remaining in contraction and signs of stagnating growth. The deepening crisis in China’s property sector, particularly the adversity faced by Evergrande Group, also contributed to the mixed outlook for copper prices.
