Gold prices surged in Asian trade on Friday as the dollar weakened following a significant interest rate cut by the Federal Reserve. Investors welcomed the possibility of further rate reductions, driving up demand for the precious metal.
Meanwhile, copper prices also climbed amid reports that China, a major importer, was considering additional measures to support the property market. The People’s Bank of China’s decision to keep lending rates steady further fueled optimism in the industrial metals sector.
Initially, gold reacted negatively to the Fed’s rate cut on Wednesday, as Fed Chair Jerome Powell hinted at a less dovish long-term rate outlook. However, the market sentiment shifted as expectations of lower rates in the near future grew, leading to a decline in the dollar and increased investment in risk-driven assets.
Gold futures rose by 0.3% to $2,593.31 per ounce, while December futures increased by 0.2% to $2,618.40 per ounce by 00:43 ET (04:43 GMT). The escalating tensions in the Middle East also contributed to safe haven demand for gold.
Gold Sees Weekly Gains as Fed Initiates Easing Cycle
Spot gold prices were on track to gain about 0.6% for the week, following the Fed’s decision to start an easing cycle that could potentially lead to a total rate reduction of 125 basis points this year. The central bank’s 50 bps rate cut was at the upper end of market expectations.
Fed Chair Jerome Powell’s comments on higher neutral rates in the future were overshadowed by traders’ optimism about significant rate cuts in the short term. Analysts at Citi even predicted another 50 bps rate cut in November, raising concerns about the impact on the slowing U.S. economic growth.
Lower interest rates typically benefit gold prices as they reduce the opportunity cost of holding the yellow metal. While other precious metals remained relatively flat, gold outperformed them for the week.
Copper Rises on China Property Stimulus Speculations
Copper prices on the London Metal Exchange saw a 0.5% increase to $9,582.50 per ton, with one-month futures rising by 0.7% to $4.3788 per pound. The uptick in copper prices was fueled by reports that China might relax restrictions on home purchases to rejuvenate the housing market.
However, the decision by the People’s Bank of China to maintain its benchmark lending rates disappointed some traders who were anticipating more stimulus measures to boost the country’s sluggish economic growth. Calls for additional support from Beijing have been growing following weak economic data from August.
Overall, the recent developments in the financial markets, driven by the Fed’s rate cut and China’s potential stimulus measures, have implications for investors and individuals alike. The rise in gold prices and copper demand reflect the shifting market dynamics and the importance of keeping an eye on global economic indicators to make informed investment decisions.
