In an environment marked by economic uncertainties and global market shifts, gold prices remained steady on Wednesday, teetering on the edge of breaching critical thresholds. Meanwhile, copper prices experienced a two-month low as concerns over a potential Chinese economic deceleration and escalating interest rates propelled the dollar.
The latest U.S. retail sales data, unveiled on Tuesday, showcased resilient consumer spending within the nation, a factor that could potentially signify heightened inflation pressures in the months to come.
Against this backdrop, coupled with escalating risk aversion due to signals of a slowdown in the Chinese economy, investors shifted towards the dollar as a preference over traditional safe-haven assets like gold and precious metals.
Spot gold momentarily slipped below the $1,900 per ounce threshold on Tuesday, currently trading marginally above a nearly two-month nadir.
Presently, spot gold exhibited stability at $1,902.24 an ounce, while gold futures set to expire in December observed a slight decline of 0.1%, reaching $1,933.40 an ounce by 20:19 ET (00:19 GMT).
Implications from U.S. Rate Trends on Gold
Tuesday’s retail sales data emerged shortly after robust inflation figures for July, pointing towards a more assertive short-term outlook for the Federal Reserve. The central bank cautioned that if inflation maintains its upward trajectory, interest rates could experience further ascent beyond the two-decade highs. Such a scenario does not bode well for non-yielding assets like gold and other metals, as it increases their opportunity cost.
Consequently, investors displayed a heightened preference for the dollar and U.S. Treasuries as secure harbors, relegating gold in the face of deteriorating risk appetite linked to global economic vulnerabilities, particularly in China.
On Wednesday, the greenback stabilized around a 1-½ month pinnacle, rebounding emphatically from its 2023 lows across the past month.
Even if the Federal Reserve avoids further interest rate hikes, the intention to sustain rates at levels exceeding the highs of the past two decades until at least mid-2024 casts a shadow on non-yielding assets, implying a subdued outlook.
Copper Faces Headwinds from Chinese Dynamics
Within the realm of industrial metals, copper prices encountered pressure due to an influx of discouraging economic indicators stemming from China. The world’s foremost importer grapples with a deceleration in growth and disinflation.
Copper futures hovered at $3.36603 per pound, nearing their lowest echelons in a span of two months.
Data unveiled on Tuesday underscored that both Chinese retail sales and industrial production underwent growth significantly below projections for July, culminating a string of lackluster economic data for the month as post-COVID recovery momentum waned.
Although the nation’s decision to unexpectedly trim key lending rates ensued the data release, persistent apprehensions regarding a real estate market crisis curtailed optimism concerning China’s economic outlook. These concerns are exacerbated by apprehensions over a potential debt default by the prominent property entity, Country Garden Holdings.
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