With early rate reduction in mind, gold prices climb sharply in 2024

Tuesday’s increase in gold prices followed several days of high gains in 2023, as traders welcomed the possibility of an early 2024 Federal Reserve interest rate decrease. The market greeted the Fed’s dovish signals with open arms, increasing betting that the bank may start reducing rates as early as March 2024. Spot prices of the yellow metal were trading about $70 an ounce below a record high established at the beginning of December.

Gold futures expiring in February saw a 0.3% increase to $2,078.90 an ounce, while spot gold increased by 0.3% to $2,069.89. Nonfarm payrolls held off on increasing indications of a Fed rate decrease.
The primary emphasis of the markets was on the nonfarm payrolls data for December, which is scheduled for release this Friday. The labor market is predicted to continue cooling, which would increase pressure on the Fed to think about lowering interest rates sooner rather than later.

With over 70% probability, traders are pricing in a rate drop by the Fed of 25 basis points in March, according to the CME’s Fed watch tool. Price pressures were well over the Fed’s 2% annual target even though the labor market and inflation both significantly declined through 2023. It was also becoming rather hot in the work area. The Federal Reserve issued a warning in December, stating that further cooling in the two trends would be necessary before the bank would contemplate reducing interest rates early.

Additionally, officials cautioned that expectations of an early rate cut by the Fed were too high. Nonetheless, a reduction in interest rates by the Fed is still widely anticipated in 2024, which is encouraging for gold because investing in the yellow metal becomes more costly at higher yields. Before a robust rebound in December 2023, this transaction had pummeling gold for the most of 2023.

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