Gold prices fell slightly on Tuesday after several Federal Reserve officials downplayed expectations that a dovish pivot by the central bank was imminent, which helped stem recent losses in the dollar.
The yellow metal still held above the coveted $2,000 an ounce level, but edged towards the low-$2,000s following less dovish signals on U.S. monetary policy.
Resilience in the dollar- which rebounded sharply from four-month lows this week- also weighed on gold prices.
Spot gold fell 0.1% to $2,024.67 an ounce, while gold futures expiring February fell 0.1% to $2,038.20 an ounce by 00:35 ET (05:35 GMT).
Fed officials attempt to temper rate cut bets
A slew of Fed officials said on Monday that market enthusiasm over immediate interest rate cuts was somewhat unfounded, and that sticky inflation may keep monetary conditions tighter for longer.
Chicago Fed President Austan Goolsbee said he was “confused” with how markets reacted to the Fed’s meeting last week, while Cleveland Fed President Loretta Mester said that the Fed wasn’t looking at rate cuts, but rather at how long policy needed to remain tight to put inflation back at its 2% target.
Their comments somewhat clashed with a dovish outlook from the Fed during its final policy meeting for the year, where the central bank said it was done raising interest rates and will consider cuts in 2024.
Comments from the Fed saw markets pricing in rate cuts by as soon as March 2024- bets which also triggered flows into rate-sensitive assets such as gold. The yellow metal soared past the $2,000 an ounce level after the Fed meeting, and has since retained the level.
Markets also retained their bets on early rate cuts, with Fed Fund futures prices showing a nearly 63% chance for a 25 basis point rate cut in March 2024.
Gold is expected to benefit from a lower rate environment, given that higher rates push up the opportunity cost of investing in the yellow metal. This trade had limited any major upside in gold over the past year.
Copper creeps higher on China stimulus hopes
Among industrial metals, copper prices rose on Tuesday, buoyed by expectations of more monetary stimulus in China after a bumper liquidity injection by the People’s Bank last week.
Copper futures expiring March rose 0.3% to $3.8595 a pound.
The red metal saw strong gains in recent sessions, tracking weakness in the dollar, and as the People’s Bank of China injected over $100 billion worth of yuan liquidity into the economy to shore up growth.
The PBOC is now set to keep its benchmark loan prime rate at record lows later this week.
