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What’s happening: Gold prices moved higher on Wednesday, amid weakness in the US dollar on Fed rate cut expectations.
What happened: Traders added more zero-yield bullion to their portfolio, with speculations of interest rate cuts in the US in 2024.
Prices for the safe-haven metal surged to its strongest level in over three weeks during Wednesday’s session.
Why it matters: With latest data showing US inflation easing closer to the central bank’s target of 2%, the Federal Reserve is expected to begin cutting interest rates in early 2024.
Data released last week showed the Fed’s preferred inflation gauge had continued to cool. The headline PCE eased to 2.6% year-over-year in November, from 2.9% in the prior month. With this, there were growing speculations of an interest rate cut by the Fed as early as March next year. Lower rates lower the opportunity cost of holding non-yielding gold.
Weakness in the US dollar and bond yields lent further support to gold on Wednesday. A lower US dollar makes metal cheaper for foreign currency holders.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, has dipped to a five-month low and is on course to recording its first yearly decline since 2020. The index fell more than 0.4% to 100.99 on Wednesday. Benchmark 10-year Treasury yields also traded close to a five-month low level.
Gold for February delivery gained $23.30 to close at $2,093.10 per ounce on Wednesday.
In other metals trading, silver for March delivery added 24 cents to $24.64 per ounce, while March copper rose by 6 cents to $3.96 per pound on Wednesday and platinum surged more than 3% to $1,014.6. palladium bucked the trend and fell sharply to $1,157.70.
What to watch: Investors will continue monitoring comments from major central bank officials worldwide. Markets will also watch moves in the US dollar and US Treasury yield.
The release of US economic reports, including initial jobless claims, wholesale inventories and pending home sales will remain in focus.
Context: The CAD/USD forex pair edged lower on Wednesday amid a decline in crude oil prices.
Details: Earlier this month, the Bank of Canada had announced plans to keep the policy rate unchanged at 5% for a third consecutive meeting. Policymakers had said, however, that they were still prepared to hike interest rates, if needed.
Annual inflation in Canada came in unchanged at 3.1% for November, which fuelled speculations of the BoC keeping interesting rates unchanged in the near term.
Weakness in the price of crude oil, one of Canada’s major exports, exerted pressure on the loonie on Wednesday. WTI crude oil for February delivery fell $1.46 to settle at $74.11 per barrel during the session.
A decline in the US dollar index limited overall losses for the CAD/USD on Wednesday. The forex pair fell by around 0.1% to 1.3211 on Wednesday.
The S&P/TSX Composite Index jumped 0.65% to close at 21,015.91, rising to its highest level since April 2022, with a surge in commodity prices provided a boost to resource-backed stocks on the Toronto Exchange.
What to watch: Traders await the release of CFIB’s business barometer from Canada today. CFIB’s Business Barometer has declined by 1.5 points to 45.6 in November and is expected to decline further to 45 in December.
Crude oil prices and movements in the US dollar will also remain in focus.
Other Markets: US trading indices closed higher on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.30%, 0.14% and 0.17%, respectively.
Russia’s deputy prime minister Alexander Novak said the country had pivoted towards other buyers, including India and China, after the sanctions imposed by Western nations due to its ongoing war with Ukraine. The news sent the RUB/USD pair higher this morning.
Japan’s retail sales grew by 5.3% year-over-year in November, versus a 4.1% rise in the prior month. The figure also topped market estimates of a 5% gain and lent support to the JPY/USD forex pair.
South Korea’s industrial production rose by 3.3% in November, versus a 3.8% decline in the prior month, which sent the KRW/USD pair higher in forex trading this morning.
The Philippines said its government budget deficit shrank to ₱93.3 billion in November, from ₱123.9 billion in the year-ago month, lending support to the PHP/USD forex pair.
Argentina’s retail sales surged 195.5% year-over-year in October, after 182.1% growth in the prior month, sending the ARS/USD pair higher in forex trading this morning.
Saudi Arabia’s unemployment rate, value of loans and money supply M3, Turkey’s economic confidence index, foreign exchange reserves and MPC meeting summary, Spain’s retail sales, Brazil IGP-M inflation and net payrolls, France’s initial jobless claims and number of people registered as out of work, India’s money supply M3, Mexico’s unemployment rate, US goods trade balance, continuing jobless claims, natural gas stocks change, crude oil inventories, gasoline stocks change and distillate stocks, as well as Argentina’s consumer confidence indicator and current account.
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