Gold prices retreated in Asian trade on Friday, stepping back from the record highs reached earlier in the week, as a sharp increase in the dollar, spurred by a surprise interest rate cut by the Swiss National Bank, weighed on metal markets.
The precious metal had surged to unprecedented levels above $2,200 per ounce after the Federal Reserve reaffirmed its projection for at least three interest rate cuts in 2024. However, gold’s time at these peaks was brief, as the dollar staged a robust rebound in response to dovish signals from other major central banks.
Spot gold declined by 0.4% to $2,173.62 per ounce, while gold futures expiring in April experienced a nearly 0.5% drop to $2,174.90 per ounce by 00:28 ET (04:28 GMT).
Dollar strength pressures gold as major c.banks wax dovish
The primary source of pressure on gold stemmed from significant gains in the dollar, with the dollar index surging to a three-week high above the 104 level. The unexpected rate cut by the SNB, combined with dovish signals from the Bank of England, positioned the greenback as the sole major high-yielding, low-risk currency.
The dollar’s ascent was further fueled by signs of resilience in the U.S. economy, bolstered by an optimistic outlook from the Fed and robust purchasing managers index data. This economic strength prompted traders to heavily favor the dollar, exerting downward pressure on metal markets given that investing in precious metals like gold does not offer direct yields.
The strength in the dollar is anticipated to constrain significant upside potential in bullion, at least until the Fed commences interest rate cuts later in the year. The central bank is currently expected to implement a 25 basis point rate cut in June, as indicated by the CME Fedwatch tool.
However, any eventual reduction in interest rates is forecasted to benefit bullion prices later in the year, with Citi analysts setting a year-end price target of $2,300 per ounce for gold.
In addition to gold, other precious metals also retreated in Asian trade, surrendering most of the gains made following the Fed’s announcements. Platinum futures fell by 0.7% to $905.10 per ounce, while silver futures declined by 1% to $24.758 per ounce.
Copper pulled off 11-mth peaks as China jitters grow
Three-month copper futures on the London Metal Exchange experienced a 1% decline, settling at $8,882.0 per ton, while one-month U.S. copper futures dropped 1.2% to $4.0175 per pound. These figures marked a notable retreat from the 11-month highs reached earlier in the week.
The decline in copper prices was exacerbated by deteriorating sentiment surrounding China. The country’s stock markets witnessed significant declines on Friday amid growing concerns regarding slowing economic growth and the possibility of additional U.S. sanctions.
Despite these downward pressures, the outlook for copper markets remained constrained, particularly in light of recent reports indicating that major Chinese copper refiners intend to scale back output throughout the year. This reduction in output further underscores the tight supply conditions prevailing in the copper market.