Gold prices remained relatively steady on Friday, heading for a second consecutive week in the red as traders awaited crucial cues on U.S. interest rates. The focus on key inflation data and an upcoming Federal Reserve meeting kept market participants on edge.
On the contrary, copper prices were poised for a robust weekly performance, buoyed by China’s implementation of additional stimulus measures. The move sparked optimism that demand for the red metal would remain resilient.
China’s stimulus efforts contributed to an improvement in risk appetite, further impacting gold demand, which was already subdued due to record highs on Wall Street.
The strength of the U.S. dollar, influenced by better-than-expected gross domestic product data, exerted additional pressure on bullion prices. Gold remained firmly within a trading range of $2,000 to $2,050 established over the past week.
As of 23:46 ET (04:46 GMT), spot gold steadied at $2,021.41 per ounce, while gold futures expiring in February inched up 0.2% to $2,021.10 per ounce. Both instruments recorded a weekly decline of about 0.3%.
Despite potential losses, gold found support from safe-haven demand amid escalating conflicts such as the Israel-Hamas war and growing tensions in the Middle East.
PCE Inflation and Fed Meeting in the Spotlight
Market attention has shifted to upcoming cues on U.S. monetary policy, starting with the release of the Personal Consumption Expenditures (PCE) price index data — the Federal Reserve’s preferred inflation gauge. Analysts expect the reading to reaffirm stubborn inflation figures for December.
Persistent inflation, coupled with signs of resilience in the U.S. economy, provides the Federal Reserve with more flexibility to maintain higher interest rates for an extended period. This expectation is likely to constrain significant upside movements in gold in the coming months.
The Federal Reserve is scheduled to convene next week, widely expected to keep rates unchanged. Market sentiment has shifted towards an expectation of the central bank maintaining this stance during its March meeting, reversing earlier predictions of a 25 basis-point cut.
A prolonged outlook for higher U.S. rates poses challenges for gold prices, given that elevated rates increase the opportunity cost of investing in the precious metal.
Copper Prices Show Resilience Amid China Optimism
In contrast to gold, copper futures expiring in March experienced a slight decline of 0.2% to $3.8617 per pound. Nevertheless, they were set to register a weekly gain of over 2%, reaching three-week highs.
Copper’s positive performance was primarily fueled by increased monetary stimulus in China, alleviating concerns about a potential slowdown in demand.
Analysts, however, raised questions about the extent of economic support provided by additional monetary stimulus, considering China’s struggles with a severe slowdown in consumer and business spending. Despite expectations for a post-COVID economic rebound in 2023, sentiment towards China remains largely negative.
The focus now turns to upcoming Purchasing Managers Index (PMI) data from China, scheduled for release next week, offering further insights into the state of the economy.
