Gold prices fell below a key support level in Asian trade on Wednesday after a hotter-than-expected inflation reading for January spurred more fears that the Federal Reserve will keep rates higher for longer. 

The yellow metal saw extended losses after spot prices slid below the closely-watched $2,000 an ounce support on Tuesday, with analysts warning of more potential declines after the loss of the key support level. 

Traders were also seen steadily pricing out early interest rate cuts by the Fed, which leaves gold with little scope for recovery in the near-term. The dollar shot up to a three-month high after Tuesday's reading, further pressuring gold. 

Spot gold fell slightly to $1,992.64 an ounce, while gold futures expiring in April fell 0.1% to $2,005.05 an ounce by 00:06 ET (05:06 GMT). Both instruments lost over 1% each on Tuesday. 

Spot gold was also below $2,000 an ounce for the first time since mid-December. 

James Stanley, Senior Strategist at FOREX.com said that $1,975 to $1,978 an ounce was likely to be the next support level for gold- given that it was the last support level seen by the yellow metal in the lead-up to December’s Fed meeting. 

Sticky inflation dents May, June rate cut bets, gold outlook cloudy

Consumer price index (CPI) inflation data on Tuesday showed that U.S. inflation grew more than expected in January, giving credence to recent warnings from the Fed that sticky inflation will keep the bank from cutting interest rates.

The CME Fedwatch tool showed traders scaling back bets on rate cuts in May and June, although traders were still pricing in a 51% chance for a 25 basis point cut in June.

Still, the prospect of higher-for-longer rates bodes poorly for gold, given that higher rates push up the opportunity cost of investing in the yellow metal. This trend has limited any major gains in gold prices over the past two years.

The yellow metal made limited headway beyond $2,050 in recent sessions, although it still gained about 10% in 2023.

Copper prices head towards 3-mth low amid dollar pressure 

Among industrial metals, copper prices saw extended losses on Wednesday and came back in sight of a three-month low, as a stronger dollar and the prospect of slowing economic growth weighed.

Copper futures expiring in March fell 0.5% to $3.6922 a pound, and were close to their weakest levels since mid-November.

The prospect of higher-for-longer rates also factored into concerns over slowing copper demand, given that economic activity usually cools in a high-rate environment.

Copper prices were also still reeling from the discovery of a massive deposit in Zambia, which is expected to eventually increase global supply. But the deposit is expected to take a long time to transform into a full-capacity mine.