Gold Prices Rise on Rate Cut Prospects

Gold prices rose in Asian trade on Friday as the dollar fell following an outsized interest rate cut by the Federal Reserve, with markets cheering the prospect of further reductions in rates.

Copper Prices Gain on Chinese Stimulus Hopes

Among industrial metals, copper prices rose as media reports indicated that top importer China was considering more supportive measures for the property market, after the People’s Bank left benchmark lending rates unchanged.

Gold initially logged a negative reaction to the rate cut on Wednesday, given that Fed Chair Jerome Powell provided a less dovish outlook for long-term rates.

However, markets rejoiced at the prospect of lower rates in the near-term, leading to a weaker dollar and increased investments in risk-driven assets.

Spot gold rose 0.3% to $2,593.31 an ounce, while December gold futures increased by 0.2% to $2,618.40 an ounce.

Safe haven demand for gold also increased due to escalating tensions in the Middle East, following Israel's alleged actions against Hezbollah, which escalated retaliation vows.

Weekly Gains Expected for Gold

Spot prices were set to add about 0.6% this week, as the Fed began an easing cycle that could see interest rates decrease by as much as 125 basis points this year. The central bank has already cut rates by 50 bps, at the upper end of market expectations.

While Powell signaled that future neutral rates would be higher than previously seen, traders welcomed the prospect of sharp short-term rate decreases. Citi analysts suggest the Fed may cut rates by another 50 bps in November.

The Fed’s substantial cut raised concerns over slowing U.S. economic growth, maintaining safe haven demand for gold. Lower rates are favorable for gold, as they reduce the opportunity cost of investing in the precious metal.

Other precious metals were mostly stable, lagging behind gold this week. Platinum futures steadied at $989.55 an ounce, while silver futures fell 0.3% to $31.34 an ounce.

Copper Gains Amid Chinese Economic Stimulus

Benchmark copper futures on the London Metal Exchange rose 0.5% to $9,582.50 a ton, with one-month copper futures increasing by 0.7% to $4.3788 a pound.

Copper's gains followed Bloomberg's report that top importer China was considering removing major restrictions on home purchases to revive the housing market, potentially aiding the struggling property sector.

However, the People’s Bank of China left its benchmark loan prime rate unchanged on Friday, disappointing traders who sought more rate cuts to support sluggish economic growth in China. Calls for increased stimulus from Beijing have grown in recent weeks, especially in light of weak economic data for August.