Gold prices remained steady above the key $2,000 mark on Monday, driven by safe-haven demand stemming from the Israel-Hamas conflict. The ongoing uncertainty surrounding this conflict has kept investors inclined towards traditional safe-haven assets. Over the weekend, Israel launched a ground assault on Gaza, raising concerns about potential further escalation in the region.
Despite this, gold’s upward momentum was somewhat tempered by a stronger US dollar as markets prepare for the upcoming Federal Reserve meeting this week. The greenback strengthened slightly on Monday, along with Treasury yields.
As of 00:22 ET (04:22 GMT), spot gold dipped 0.2% to $2,002.22 per ounce, while gold futures for December delivery held steady at $2,011.70 per ounce. Both gold instruments maintained levels near their highest since mid-May.
Anticipation of Federal Reserve Meeting and Economic Data
Market focus is squarely on the two-day Federal Reserve meeting scheduled for this week, with the central bank widely expected to keep interest rates unchanged. However, traders anticipate the Fed will reaffirm its commitment to a higher-for-longer interest rate stance, particularly in light of recent data showing an uptick in inflation and continued economic resilience.
Fed officials have indicated that the possibility of at least one more rate hike this year remains open, and this outlook will likely be influenced by the nonfarm payrolls data set to be released on Friday. The strength of the US economy provides the Fed with room to maintain higher interest rates.
Impact of Higher Rates on Gold
It’s worth noting that higher interest rates can negatively affect gold prices, as they increase the opportunity cost of holding non-yielding assets like gold. This notion has weighed on gold prices over the past year, especially as global interest rates have risen.
Upcoming Rate Decisions and Copper’s Performance
In addition to the Federal Reserve meeting, rate decisions from the Bank of Japan and Bank of England are also on the calendar for this week.
Meanwhile, copper prices saw a slight rise on Monday, with futures for the industrial metal increasing by 0.3% to $3.6508 per pound. Copper’s performance is closely linked to expectations for key economic data from China, particularly the purchasing managers index (PMI) figures set to be released on Tuesday. These figures are expected to show further improvements in manufacturing activity in China, the world’s largest copper importer.
However, the gains in copper prices are likely to be capped as anticipation of the Federal Reserve meeting continues to affect market risk appetite.
