Gold prices cross $2,060 as soft inflation heralds 2024 rate cuts

Investing.com-- Gold prices rose in low-volume Asian trade on Tuesday, breaking out of a trading range seen through most of December as soft U.S. inflation data fueled more bets on early interest rate cuts in 2024. 

The yellow metal saw a strong run of gains in recent sessions, following a weaker-than-expected reading on the PCE price index- the Federal Reserve’s preferred inflation gauge. 

The reading, which came following dovish signals from the Fed during its final meeting for 2023, ramped up hopes that the central bank could begin trimming interest rates by as soon as March 2024. 

This notion presented a strong outlook for gold, given that high interest rates push up the opportunity cost of investing in bullion.

Spot gold rose 0.5% to $2,064.16 an ounce, while gold futures expiring in February rose 0.3% to $2,075.10 an ounce by 23:58 ET (00:58 GMT). 

Spot gold also broke out of a $2,000 to $2,050 trading range established in most of December, and was now trading less than $100 away from a record high of over $2,130 an ounce hit at the beginning of the month. 

March rate cuts bet strengthen after soft PCE inflation 

Softer-than-expected PCE inflation data released on Friday saw traders ramp up bets that the central bank will begin cutting interest rates by as soon as March 2024. 

CME Group’s FedWatch tool showed traders pricing in an over 70% chance for a 25 basis point cut in March 2024. Goldman Sachs said the central bank will follow up a March cut with two more cuts in the first half of 2024, and will also cut rates another two times later in the year. 

But a slew of Fed officials warned that bets on early rate cuts by the central bank may be overly optimistic. 

Still, the dollar slid to a near five-month low on Tuesday, while Treasury yields also tumbled. Gold benefited from this trade.

The yellow metal may also benefit from worsening global economic conditions in the coming year, as the effects of tight monetary policy are felt by major economies. 

Copper prices steady, 2024 outlook appears upbeat 

Among industrial metals, copper prices rose in Asian trade on Tuesday, extending a run of recent gains amid some optimism over the red metal’s prospects in 2024.

Copper futures expiring March rose 0.4% to $3.9153 a pound. 

While a recent drop in the dollar was a key point of support for the red metal, expectations of improving demand in 2024 also aided copper, especially amid increasing demand for electric vehicles across the globe. The red metal is a key component in batteries and electronics. 

Copper supplies are also expected to tighten on the back of major mine closures in Panama and Peru.