Gold prices set for steep weekly drop as traders question March rate cut

Investing.com-- Gold prices steadied on Friday, but were nursing steep declines for the week as growing doubts over early interest rate cuts by the Federal Reserve battered the yellow metal.

Bullion prices had fallen sharply to a one-month low on Wednesday, but found some support around the $2,000 an ounce level amid some safe-haven demand.

Gold was battered chiefly by traders pivoting into the dollar as strong economic data and hawkish-leaning comments from Fed officials saw markets further price out expectations for a March rate cut by the central bank.

But the yellow metal still saw some support from safe haven demand, as a military conflict in the Middle East escalated to new avenues. While U.S. and UK forces continued to clash with the Iran-led Houthi group in the Red Sea, tensions grew between Iran and Pakistan after a series of strikes.

Spot gold fell 0.1% to $2,020.91 an ounce, while gold futures expiring in February were flat at $2,022.75 an ounce by 00:35 ET (05:35 GMT). Both instruments were set to lose about 1.4% each this week.

Gold sinks as traders sharply pare March rate-cut bets

Pressure on gold came chiefly from receding expectations that the Fed will begin cutting rates by as soon as March 2024. The trend pointed to continued headwinds to the yellow metal from higher-for-longer interest rates, which push up the opportunity cost of investing in bullion.

CME’s Fedwatch tool showed traders pricing in a 51.9% chance for a 25 basis point cut in March, down sharply from the 70.2% chance seen last week.

Analysts expect traders to further curb their enthusiasm, given that stronger-than-expected retail sales data indicated continued resilience in the U.S. economy.

Atlanta Fed Reserve President Ralph Bostic also joined a chorus of officials warning against bets on early rate cuts, and said he expects the bank to begin cutting rates only by the third quarter of 2024.

“Fed funds futures still have more than 140bp of easing by the year-end and more than a 50% chance of a March hike, so there is still likely some unwinding of this to go before we can start thinking again about easing,” analysts at ING wrote in a note.

Copper prices remain pressured by China weakness

Among industrial metals, copper prices fell slightly on Friday, and were set for a muted finish to the week amid persistent concerns over top importer China.

Copper futures expiring in March fell 0.3% to $3.7477 a pound.

Prices of the red metal had started 2024 on a dour note, and saw fresh selling pressure this week following softer-than-expected economic growth readings from China, the world’s biggest copper importer.

Weakness in China added to concerns that copper demand will soften this year, as markets also grew wary of declining global demand for electric vehicles.

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