GOLD
February gold futures are lower on Monday giving back a portion of the gains that were made on Friday. Some of the strength on Friday can be attributed to the mild PCE inflation report. This report reignited expectations that the Federal Reserve may ease monetary policy further next year. The positive momentum came just days after the Federal Reserve indicated a more gradual pace of interest rate cuts, which had previously pushed gold prices to their lowest level in a month. However, strength in the U.S. dollar today is the main reason for today’s weakness in gold.
Gold’s near-term prospects could face challenges due to declining physical demand in major consumer India, where officials predict a significant drop in gold imports for December. Despite these concerns, gold has surged more than 26% this year, which puts it on track for its largest annual gain since 2010, driven by U.S. monetary policy easing, strong demand for safe-haven assets and continued buying by major central banks.
SILVER
March silver futures advanced to above the $30.35 per ounce level today, recovering from a three-month low that was reached on December 19, as markets reassessed the expected degree of accommodation from the Federal Open Market Committee in the coming year. Softer than expected core PCE inflation data for November eased concerns about excessively tight monetary policy, which had been fueled by hawkish commentary from FOMC members.
Upward momentum on silver may be limited due to uncertainties surrounding its industrial demand. Overcapacity in China’s solar panel sector led photovoltaic companies to join a government self-discipline program aimed at regulating supply, which limited the outlook for silver demand in the industry.
Additionally, concerns over a potential yuan devaluation, linked to China’s more relaxed monetary policy, put additional pressure on silver prices as it lowered demand from the world’s largest exporter.
COPPER
On Friday March copper futures fell to the lowest level since August 12 as investors weighed the outlook for Chinese industrial demand. Softer U.S. PCE inflation in November fueled hopes that the Federal Reserve could implement more interest rate cuts than previously anticipated, despite the hawkish tone of last week’s Federal Open Market Committee’s dot plot. This boosted U.S. dollar-denominated assets and alleviated concerns about weak U.S. manufacturing. However, uncertainty around China’s fiscal stimulus efforts added to skepticism, as the lack of concrete details increased doubts about the effectiveness of its promised support.
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