Gold prices experienced a slight decline on Thursday, signaling a pause in the recent rally, as markets awaited more cues on U.S. monetary policy from a crucial inflation reading scheduled later in the day. Despite the dip, gold prices remained close to a seven-month peak reached earlier in the week, driven by expectations of a less hawkish Federal Reserve, a weaker dollar, and increased safe-haven demand.
Spot gold fell by 0.1% to $2,042.10 per ounce, while gold futures expiring in December dropped by 0.2% to $2,044.10 per ounce. Both instruments had seen gains of 2.5% to 3.1%, marking their second consecutive month of strong performance.
The recent surge in gold prices was fueled by indications from various Fed officials suggesting that a decline in inflation might dissuade the central bank from further interest rate hikes. This sentiment, along with expectations of a potential rate cut in early 2024, eased pressure on gold from high-interest rates, which had negatively impacted the metal over the past 18 months.
Investors were eagerly awaiting the release of the PCE price index data for October, the preferred inflation gauge of the Fed. This information was expected to influence the central bank’s stance on interest rates in the coming months. Additionally, an upcoming speech by Fed Chair Jerome Powell on Friday, just before the two-week blackout period ahead of December’s Fed meeting, was also in focus.
Easing U.S. interest rates, especially the prospect of early rate cuts in 2024, boded well for gold, given that high-interest rates increase the opportunity cost of buying bullion. Spot prices were approximately $30 away from a record high hit earlier in the year.
In the realm of industrial metals, copper prices rose slightly on Thursday despite weaker-than-expected economic readings from China, the top copper importer. Copper futures expiring in March increased by 0.2% to $3.8418 per pound, with a 5.3% jump in November. The weakness in the dollar played a role in supporting copper prices.
Although Chinese manufacturing activity showed a contraction in November, indicating a potential cooling in copper demand, signs of tighter copper markets due to major mine closures in Peru and Panama countered this notion. The closures are expected to limit copper supplies in the coming months, while increased demand for electric vehicles and a push for green energy are anticipated to offset declining Chinese demand.
