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Gold Prices Decline Amid Rate-Cut Uncertainty; Copper Faces Pressure from China Economic Weakness

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Gold prices experienced further losses in Asian trade on Wednesday, influenced by signals from Federal Reserve officials indicating a cautious stance on early interest rate cuts. The dollar’s rebound also contributed to the decline in gold prices.

Gold Prices Decline Amid Rate-Cut Uncertainty; Copper Faces Pressure from China Economic Weakness

Meanwhile, copper prices neared a one-month low, impacted by moderate economic growth figures from China, the world’s top importer of the industrial metal.

Gold, which had reached $2,050 an ounce, saw a significant drop on Tuesday following comments from Fed Governor Christopher Waller, who expressed caution about rate cuts. Waller noted the resilience of the U.S. economy, suggesting that any potential reductions in rates might be delayed.

The remarks led to a one-month high for the dollar and a sharp rise in Treasury yields, with the 10-year rate surpassing the 4% mark. The possibility of prolonged higher U.S. interest rates offset the recent safe-haven demand for gold, prompting traders to shift towards the dollar.

Spot gold experienced a 0.4% decline, reaching $2,019.70 an ounce, while gold futures expiring in February fell by 0.4% to $2,022.90 an ounce by 00:20 ET (05:20 GMT). Both instruments registered declines of over 1% each on Tuesday.

Investors are now awaiting U.S. industrial production and retail sales data for December, which could offer insights into the strength of the U.S. economy. Positive indications, particularly in consumer spending, may provide the Fed with more flexibility to maintain higher rates for an extended period.

Traders, as observed through the CME Fedwatch tool, are slightly reducing their bets on a March rate cut by the central bank. The market currently perceives a 62.8% chance of a 25 basis point cut, down from 66.1% reported the previous day.

The upward trend in rates elevates the opportunity cost of investing in gold, limiting capital flows into the precious metal as investors seek better yields in debt. Despite safe-haven demand for gold amid heightened military action in the Middle East, the dollar remains a preferred safe-haven choice for traders.

While gold faces challenges, it could benefit from a potential decline in U.S. interest rates later in the year.