Gold Prices Rise Amid Rate Hike Speculation:
Gold prices increased in Asian trade as markets anticipated that the Federal Reserve would maintain interest rates despite recent inflation upticks.
U.S. consumer and producer inflation data released this week exceeded expectations. Still, it wasn’t sufficient to convince traders that the Fed would further raise rates during its upcoming meeting.
Gold benefited from this sentiment but faced headwinds from a strengthening U.S. dollar, which reached six-month highs on Thursday.
Spot gold rose by 0.3% to reach $1,916.80 per ounce, and gold futures expiring in December increased by 0.3% to $1,938.35 per ounce. However, both instruments were on track to conclude the week with only marginal gains.
The strength of the dollar and rising Treasury yields added pressure to gold prices as investors sought higher yields in the greenback and government bonds.
While the Fed is expected to maintain rates at its upcoming meeting, there is uncertainty regarding the bank’s rate outlook given recent inflation increases. The central bank is anticipated to keep rates elevated for a longer period, with a rate cut not anticipated until mid-2024. Some have even raised the possibility of one more rate hike this year.
Higher interest rates are typically unfavorable for gold as they increase the opportunity cost of investing in non-yielding assets. This, coupled with signs of the U.S. economy’s resilience, has dampened demand for gold over the past year.
Copper Surges on Chinese Economic Optimism and Stimulus Measures:
Copper prices reached a 10-day high as positive economic data and additional stimulus measures from China, a major copper importer, boosted the industrial metal.
Copper futures surged by 0.8% to $3.8492 per pound and were poised for a weekly gain of 3.5%.
Data released on Friday indicated that Chinese industrial production and retail sales exceeded expectations in August, showing resilience in the world’s largest copper importer. Strong industrial activity is expected to drive increased demand for copper in China.
The People’s Bank of China’s decision to reduce reserve requirements for local banks was seen as a move to inject more liquidity into the economy, supporting the recovery.
While some economic indicators were positive, others indicated ongoing challenges. Fixed asset investment, representing capital spending by businesses, grew less than anticipated in August, and house prices declined for the tenth consecutive month.
These developments highlight the interplay between monetary policy decisions, economic data, and the performance of precious metals like gold and industrial metals like copper. The uncertainty surrounding the Federal Reserve’s stance on interest rates remains a key factor influencing the gold market, while China’s economic health and stimulus measures impact copper prices.
