1. Gold Extends Gains on Fed’s Dovish Stance

Gold prices surged in Asian trade on Thursday, building on the momentum from the previous session after the Federal Reserve declared an end to interest rate hikes and hinted at lower borrowing costs in 2024.

The central bank, as widely expected, maintained current interest rates but signaled a potentially larger-than-expected rate cut in 2024. The move was driven by the Fed’s assessment of substantial progress in bringing inflation back to its 2% annual target.

Gold capitalized on this development, surpassing the critical $2,000 an ounce threshold as the prospect of reduced U.S. interest rates increased the precious metal’s allure.

Spot gold experienced a 0.2% increase, reaching $2,031.88 an ounce, while February gold futures surged over 2% to $2,046.45 an ounce by 23:50 ET (04:50 GMT).

However, despite the rally, gold remained below the record highs of over $2,100 an ounce reached earlier in the month, reflecting market uncertainty about the precise timing of the Fed’s rate cuts.

2. Fed’s Dovish Signals and Speculation

The Federal Reserve signaled that interest rates had peaked at 5.4%, with plans for at least three rate cuts in 2024, bringing rates to 4.6%. Fed Chair Powell emphasized that while it was premature to declare victory over inflation, he projected a lower inflation outlook for 2023.

The dovish signals from the Fed intensified speculation about the timing of rate cuts. Fed fund futures prices indicated a more than 70% probability of a 25 basis points rate cut in March 2024, with a 67% chance of another 25 basis points cut in May.

Despite the positive outlook, uncertainty over the timing of rate cuts may temper optimism in the coming months. The strength of the U.S. economy, as indicated by a robust labor market and sticky consumer price index inflation in November, could lead to inflation concerns.

Higher interest rates typically elevate the opportunity cost of investing in gold, impacting its performance. The anticipation of lower rates coincides with growing optimism about a soft landing for the U.S. economy. However, any deterioration in global economic conditions, especially in Europe and China, might fuel safe-haven demand for gold.

3. Copper Prices Muted Amid China Concerns

In the realm of industrial metals, copper prices exhibited a muted response on Thursday as persistent worries about an economic slowdown in China tempered optimism over lower interest rates.

Copper futures for March delivery saw a marginal decline of 0.1% to $3.8332 per pound, despite a 1.3% rally from Wednesday, influenced by a weaker dollar.

Concerns over China’s economic slowdown persisted following weak economic readings in November, indicating a potential decline in copper demand. China faced disinflation, and lending activity remained subdued.

Attention is now focused on upcoming economic indicators from China, particularly industrial production and retail sales data scheduled for release on Friday. These signals will likely play a crucial role in shaping market sentiments.