Gold prices surged in Asian trade on Friday as the dollar weakened following a significant interest rate cut by the Federal Reserve. Investors are optimistic about further rate reductions in the future.
Meanwhile, copper prices also saw an increase after reports suggested that China might implement measures to support the property market. This news came after the People's Bank of China decided to keep lending rates steady.
Initially, gold reacted negatively to the rate cut on Wednesday, but the market sentiment shifted as investors welcomed the possibility of lower rates in the short term. This led to a decline in the dollar and increased investments in riskier assets.
Gold prices climbed 0.3% to $2,593.31 an ounce, while futures for December delivery rose 0.2% to $2,618.40 an ounce by 00:43 ET (04:43 GMT).
The demand for gold as a safe haven was also boosted by escalating tensions in the Middle East, following reports of Israel's actions against Hezbollah.
Gold Heading for Weekly Gains Amid Fed's Easing Cycle
Spot gold prices are expected to rise by about 0.6% this week, as the Federal Reserve initiated an easing cycle that could result in a total rate cut of up to 125 basis points this year. The central bank surprised the market by cutting rates by 50 bps, which was at the higher end of expectations.
Although Fed Chair Jerome Powell mentioned that neutral rates could be higher than in the past, traders are optimistic about significant rate cuts in the near future. Analysts from Citi even predict another 50 bps rate cut in November.
The Fed's aggressive rate cut has raised concerns about the slowing U.S. economic growth, further supporting the demand for gold as a safe haven asset.
Lower interest rates are favorable for gold prices as they reduce the opportunity cost of investing in the precious metal.
Copper Prices Rise on China's Stimulus Hopes
Benchmark copper prices on the London Metal Exchange increased by 0.5% to $9,582.50 a ton, while one-month futures rose 0.7% to $4.3788 a pound.
The uptick in copper prices followed reports that China is considering lifting major restrictions on home purchases to revive the housing market, potentially benefiting the struggling property sector.
However, the People's Bank of China decided to keep its benchmark lending rates unchanged, disappointing some traders who were anticipating more rate cuts to stimulate the economy.
Amid weak economic data for August, calls for additional stimulus from Beijing have been growing in recent weeks.