Gold prices saw a slight decline on Thursday in Asian trading, driven by stronger-than-expected U.S. economic data that sparked doubts over the extent to which the Federal Reserve will reduce interest rates. The yellow metal had already been under pressure earlier in the week, with the announcement of a ceasefire between Israel and Hezbollah dampening demand for safe-haven assets. Despite these losses, gold’s overall decline was contained by a retreat in the U.S. dollar, as traders continued to bet on a potential interest rate cut in December.
Gold Prices Slip Amid Economic Data
Spot gold prices dropped by 0.2%, settling at $2,630.52 per ounce, while gold futures for February delivery fell 0.4%, reaching $2,653.91 by 23:00 ET (04:00 GMT). The recent slide in gold comes after the release of key economic data from the U.S., including the Personal Consumption Expenditures (PCE) price index and GDP figures, which indicated stronger-than-expected inflation and steady economic growth. These developments have raised concerns over the future direction of U.S. interest rates, particularly as inflation remains stubbornly above the Federal Reserve’s 2% target.
U.S. Inflation Data Raises Rate Cut Uncertainty
The PCE price index, the Federal Reserve’s preferred gauge of inflation, rose as expected in October, moving further above the central bank’s 2% annual target. This uptick in inflation was accompanied by strong third-quarter GDP growth data and a slightly stronger-than-expected report on weekly jobless claims. While these figures did little to dampen expectations of a rate cut in December, they have left traders uncertain about the Fed’s plans for 2025.
The mixed data has led to growing speculation about the Fed’s rate-cut trajectory next year. Analysts are now questioning whether the central bank will continue to aggressively reduce interest rates or slow the pace of cuts. Some analysts, including those at UBS, have suggested that the Fed may adopt a more cautious approach in 2025, potentially reducing rates only once per quarter. Furthermore, there is a growing expectation that the Fed’s terminal rate—the point at which it will stop raising rates—could be higher than previously anticipated, which would bode poorly for non-yielding assets like gold.
Inflation, Trade Tariffs, and Rate Cut Forecasts
Adding to the uncertainty is the looming possibility of a second term for U.S. President Donald Trump, whose policies are expected to focus on expansionary fiscal measures and trade tariffs. These factors could drive inflation higher, creating additional pressure on the Federal Reserve to adjust its rate-cut strategy. Analysts predict that such a scenario would limit the Fed’s ability to reduce rates at the pace that markets had initially anticipated.
UBS analysts recently revised their forecast, suggesting that the Fed will likely slow down its rate cuts to a quarterly pace in 2025. The prospect of “higher-for-longer” interest rates, particularly in the face of rising inflation, has been detrimental to gold prices, which tend to perform poorly in a higher-rate environment. This uncertainty about U.S. monetary policy and its potential effects on inflation and the broader economy is keeping gold prices under pressure, limiting the yellow metal’s appeal as an investment.
Other Precious Metals Decline
The broader precious metals sector also struggled on Thursday, with platinum and silver following gold lower. Platinum futures steadied at $933.40 an ounce, while silver futures fell by 1%, reaching $30.255 per ounce. Both metals have experienced steep declines in recent weeks, reflecting broader market sentiment that is impacted by the same inflationary concerns and rate hike uncertainties affecting gold.
Industrial Metals: Copper Prices Weaken Amid Trade Concerns
In the industrial metals market, copper prices showed little movement on Thursday after suffering significant losses in recent sessions. Market attention has now turned to potential economic signals from China, the world’s largest copper importer. Benchmark copper futures on the London Metal Exchange (LME) fell by 0.1%, to $9,015.00 per ton, while February copper futures were flat at $4.1410 per pound.
The red metal has been under pressure due to growing concerns over a potential trade war between China and the U.S. U.S. President-elect Donald Trump has threatened to impose additional tariffs on Chinese goods, raising fears of a further escalation in trade tensions between the two largest economies in the world. Traders are now closely monitoring any new developments related to U.S.-China trade relations, as well as potential stimulus measures from the Chinese government to mitigate the effects of tariffs on its economy.
Market Awaiting Further Economic Data from China
As traders await more cues on China’s economic health, attention is focused on the upcoming release of China’s Purchasing Managers’ Index (PMI) data for November, which is set to be published on Saturday. The PMI data will provide key insights into the health of the country’s manufacturing and services sectors, offering more context for traders on how the world’s largest economy is coping with pressures from the ongoing U.S.-China trade dispute and potential new tariffs.
Any signs of economic slowdown in China could weigh further on copper prices, given the country’s pivotal role in global copper demand. On the other hand, a stronger-than-expected PMI reading could help alleviate some of the bearish sentiment surrounding copper, as it would indicate resilience in the Chinese economy despite the external challenges it faces.
Broader Market Sentiment Remains Cautious
The broader market sentiment remains cautious, with gold and other precious metals struggling to gain traction amid rising uncertainties around inflation, U.S. monetary policy, and global trade. Gold, in particular, faces challenges as investors weigh the prospects of rate cuts against the backdrop of persistent inflation and the possibility of higher-for-longer interest rates. The uncertainty surrounding U.S. economic policy and the potential effects of a Trump presidency continue to weigh on investor sentiment, adding further complexity to an already volatile market environment.
Meanwhile, industrial metals such as copper are facing pressure from concerns over U.S.-China trade relations, with traders waiting for further economic signals from China to gauge the strength of global demand. The interplay between geopolitical risks, economic data, and trade policies is expected to remain a key driver for commodity markets in the coming weeks, with traders closely monitoring developments as they unfold.
Conclusion: Outlook for Precious and Industrial Metals
Gold’s recent retreat, sparked by stronger-than-expected U.S. economic data and growing uncertainty over interest rates, highlights the complex dynamics at play in the global markets. While the Federal Reserve is expected to continue cutting rates in the short term, doubts are emerging about the pace and extent of those cuts, which could continue to weigh on gold prices.
At the same time, industrial metals like copper remain vulnerable to geopolitical tensions and trade risks, particularly in light of ongoing concerns over U.S.-China relations. As market participants await further economic data, particularly from China, the outlook for commodities in the near term remains uncertain. Investors will likely continue to monitor developments closely, adjusting their positions in response to any new information that may emerge regarding inflation, interest rates, and global trade tensions.
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