Gold prices remain flat ahead of Fed decision; copper falls on poor demand

Gold prices remained flat for most of Wednesday as investors waited for the outcome of the US Federal Reserve’s two-day meeting later in the day. 

Prices had fallen in the previous session as the market remained worried about the long-term outlook of interest rates in the US. 

The Fed is expected to slow down the rate-cutting cycle as inflation in the US remained sticky, while the labour market was resilient. 

At the time of writing, the February gold contract on COMEX was at $2,661.94 per ounce, flat from the previous close. 

Gold prices under pressure ahead of Fed meeting

Gold prices on COMEX fell below $2,650 per ounce on Tuesday, erasing most of the gains accrued last week. 

“The main headwind is the sharp rise in US bond yields, which is increasing the opportunity cost of holding gold,” Carsten Fritsch, commodity analyst at Commerzbank AG, said. 

Fritsch added:

Behind this is a reduction in the expectations of Fed interest rate cuts in the coming year.

Elevated interest rates dampen demand for gold as it is an unyielding asset unlike bonds. 

Commerzbank also believes that the market has already priced in a cut in interest rates at the ongoing Fed meeting, which concludes later today. 

Investors will now focus on the comments from the Fed Chair Jerome Powell, and look for cues about the central bank’s preferred path next year. 

“If the expectations of interest rate cuts then increase again, the gold price could rise,” Fritsch said. 

According to the CME FedWatch tool, traders have priced in a 95.2% probability of the central bank cutting interest rates by 25 basis points later in the day.

Technical forecast

According to experts, the selling pressure on gold is not over yet. 

“While it could be exhausted if prices can maintain current levels, a retest of $2,600 cannot be ruled out. And a break below here would open up the probability of a drop back down to the lows from mid-November, around $2,530, or even back to late summer levels around $2,500,” David Morrison, senior market analyst at Trade Nation, said. 

Morrison said that if prices fall to those levels, it could signal the end of the bull market. 

But it would also be an opportunity for a huge MACD (moving average convergence divergence) reset which could provide a springboard for another run at $3,000 – a long time target for the bulls.

Several organisations such as the Bank of America and Goldman Sachs have forecast that gold could reach $3,000 per ounce next year. 

However, Commerzbank expects prices to average much lower around $2,650 per ounce in 2025. 

Copper prices fall

Among other metals, copper prices retreated on Wednesday on concerns over weakening demand in the top consumer, China. 

Retail sales growth declined, while industrial output came in line with expectations for last month. 

This weighed on sentiments in the copper market, dragging down prices. 

The declines come despite China’s plans to adopt a looser monetary policy to boost economic activities as the country struggles with a property crisis. 

Reuters reported on Tuesday that Beijing will raise its budget deficit to 4% from 3% of gross domestic product in 2025- its highest on record, and will also target GDP growth of 5% for a third consecutive year.

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