In low-volume Asian trade, gold prices surged on Tuesday, breaking out of the trading range observed throughout December. The momentum was fueled by soft U.S. inflation data, heightening expectations of early interest rate cuts in 2024. Gold witnessed a robust rally in recent sessions, following a weaker-than-expected reading on the PCE price index, the Federal Reserve’s preferred inflation gauge.
The dovish signals from the Fed’s final meeting for 2023 heightened hopes that the central bank might initiate interest rate cuts as early as March 2024. This positive outlook for gold was fueled by the notion that high interest rates elevate the opportunity cost of investing in bullion.
Spot gold experienced a 0.5% rise, reaching $2,064.16 per ounce, while gold futures expiring in February increased by 0.3% to $2,075.10 per ounce. Breaking out of the $2,000 to $2,050 trading range established in December, spot gold is now trading within $100 of the record high set at the beginning of the month.
The anticipation of March 2024 rate cuts gained strength following the release of softer-than-expected PCE inflation data, prompting traders to price in a more than 70% chance of a 25 basis point cut in March 2024, according to CME Group’s FedWatch tool. Goldman Sachs predicted that the central bank might follow up with two more cuts in the first half of 2024 and an additional two cuts later in the year.
Despite warnings from several Fed officials cautioning against overly optimistic bets on early rate cuts, the dollar slid to a near five-month low, and Treasury yields also declined, benefiting gold.
Gold’s positive trajectory may also be supported by worsening global economic conditions in the coming year as major economies experience the effects of tight monetary policy.
