Gold prices experienced a significant uptick on Wednesday, reaching their highest point in nearly three weeks. Market sentiment is driven by widespread expectations that the Federal Reserve is gearing up to implement interest rate cuts in the first quarter of 2024.

As of 0934 GMT, spot gold witnessed a nearly 0.1% increase, reaching $2,068.59 per ounce. Notably, gold is on track to achieve an impressive over 13% gain this year, marking its best performance since 2020. Simultaneously, US gold futures rose by 0.5% to $2,079.90 per ounce.

Kunal Shah, the Head of Research at Nirmal Bang Commodities in Mumbai, emphasized the prevailing consensus that the Federal Reserve is unlikely to raise interest rates. Shah stated, “There are a lot of ifs and buts, permutations and combinations, but the fact remains that no matter what, the Fed’s not going to hike the rates again… it’s the base case scenario (for gold).”

This sentiment is fueled by a recent report from the US Commerce Department, revealing a continuous decline in underlying inflation pressures. The data has solidified analysts’ expectations of a potential rate cut by the Fed in March, with traders now pricing in an approximately 80% chance, according to the CME FedWatch tool.

Lowering interest rates inherently diminish the opportunity cost of holding non-yielding assets like gold, contributing to the metal’s allure for investors.

The dollar index’s proximity to a five-month low is also playing a crucial role in boosting bullion prices. The index is on track for its most significant annual decline since 2020, down about 2% for the year. A weakened dollar tends to make gold more appealing for holders of other currencies.

In contrast, spot silver experienced a marginal decline of 0.4%, settling at $24.09 per ounce. Despite this dip, it is poised for a modest gain of approximately 0.5% for the year. Platinum, on the other hand, rose by 0.2% to $980.18, while palladium witnessed a more substantial 1.5% increase, reaching $1,192.12. However, both platinum and palladium are heading towards a yearly decline, with palladium notably plummeting around 34%—its most substantial drop since 2008.