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Gold prices surged to record highs in Asian trading on Tuesday, building on recent gains driven by optimism over U.S. interest rate cuts, while copper prices rallied sharply following a wave of stimulus measures announced by the Chinese government. These developments are setting the stage for a dynamic week in the commodities market as investors keep a close watch on upcoming economic cues.
Gold Soars to New Heights
Spot gold climbed 0.3% to reach $2,638.31 an ounce, while December gold futures rose 0.3% to hit a peak of $2,660.80 an ounce. This impressive rise marks an extension of the momentum that began last week after the U.S. Federal Reserve implemented a significant rate cut, with expectations of further reductions providing even more upward pressure on the yellow metal.
The Impact of U.S. Interest Rates on Gold
The recent surge in gold prices is primarily attributed to the Federal Reserve’s decision to cut interest rates by 50 basis points last week, a move that signals the start of a potential easing cycle. Lower interest rates typically benefit gold by reducing the opportunity cost of holding this non-yielding asset. The rate cut also led to a weaker dollar and lower Treasury yields, further enhancing gold’s appeal.
Several Fed officials have expressed support for last week’s rate cut but suggested that the pace of further reductions might slow down in the coming months. However, analysts at Citi predict that the Fed may implement an additional 125 basis points in cuts by the end of the year, indicating potential sustained strength for gold in the months ahead.
Market participants will be paying close attention to a series of speeches by Federal Reserve officials this week, with a highlight being Chair Jerome Powell’s address scheduled for Thursday. Additionally, the Personal Consumption Expenditures (PCE) price index data, the Fed’s preferred measure of inflation, will be released on Friday. This data is expected to show that inflation remained above the central bank’s target range in August, a factor that could influence future rate decisions and, consequently, gold prices.
While gold continues to dominate the headlines, other precious metals have also experienced gains. Platinum futures rose by 1.1% to $971.20 an ounce, and silver futures increased by 1.1% to $31.43 an ounce. However, these metals have lagged behind gold in recent sessions, unable to match the same level of investor enthusiasm.
Copper Rallies on Chinese Stimulus Measures
Copper prices saw a sharp rally on Tuesday after the Chinese government announced a series of stimulus measures aimed at bolstering the country’s economy. Benchmark copper futures on the London Metal Exchange rose by 1.6% to $9,702.50 a ton, while one-month copper futures surged 2.1% to $4.4380 a pound.
China, the world’s largest copper importer, unveiled a range of economic stimulus initiatives, including a 50 basis point cut in bank reserve requirements and a reduction in interest rates for existing mortgages. These measures have sparked hopes of an economic recovery in China, which is expected to drive increased demand for copper in the coming months.
However, despite the optimism surrounding China’s stimulus measures, mixed purchasing managers’ index (PMI) readings from several major economies have somewhat tempered copper’s ascent. These PMI readings indicate a decline in manufacturing activity, suggesting that global demand for copper may face headwinds in the short term.
As the week progresses, all eyes will be on the Federal Reserve’s upcoming cues, particularly Jerome Powell’s speech and the PCE price index data. These events will likely play a pivotal role in determining the future trajectory of gold prices. Meanwhile, China’s stimulus measures are expected to continue supporting copper prices, but investors will remain cautious, given the mixed signals from global manufacturing data.
The interplay of these factors will make the commodities market an exciting space to watch in the coming days, with gold and copper at the forefront of investors’ attention.
