Gold prices experienced a decline below crucial levels on Wednesday, extending their recent slump, as investors showed a preference for the US dollar due to persistent concerns about increasing interest rates following hawkish signals from the Federal Reserve.
The US dollar surged to 10-month highs this week, overshadowing gold’s appeal as a safe-haven asset, particularly as interest rates continue to rise. With the Federal Reserve indicating another rate hike in 2023 and fewer expected rate cuts in the following year, this trend is expected to persist.
The attractiveness of gold also waned in the face of surging Treasury yields, with the benchmark 10-year yield hitting a 16-year peak this week.
Spot gold, representing real-time trading in physical bullion, saw a 0.2% decline, dropping to $1,897.49 per ounce. This marked the first time in a month that gold fell below the $1,900 level.
Meanwhile, gold futures for December experienced a 0.2% decrease, reaching $1,914.95 an ounce and registering one-month lows by 00:31 ET (04:31 GMT). Both gold instruments extended their losses into a third consecutive session.
The rise in interest rates has increased the opportunity cost of holding non-yielding assets like gold, a factor that has weighed heavily on the precious metal throughout the past year.
Despite growing concerns about a potential US government shutdown, gold failed to see significant safe-haven demand. Congress has until the end of September to pass a spending bill, but there have been few signs of consensus among policymakers on a broader spending bill.
Analysts have cautioned that a government shutdown in 2023 could have significant repercussions for the US economy, particularly as it grapples with high interest rates and persistent inflation. However, this concern has not translated into substantial inflows into gold, as past government shutdowns have had limited impacts on risk-driven assets, notably stocks.
In the realm of industrial metals, copper prices also experienced a decline on Wednesday, despite positive data indicating that China’s industrial profits rebounded in August following nearly a year of decline. Copper futures dropped 0.2% to $3.6402 per pound, nearing a one-month low.
Optimism stemming from the Chinese data was largely offset by deepening fears of a crisis in the property market. Reports emerged that the chairman of beleaguered developer China Evergrande Group (HK:3333) had come under police surveillance shortly after the company suspended its debt restructuring plan due to an investigation into its subsidiary, Hengda Real Estate.
Evergrande, the world’s most indebted property developer, lies at the heart of a growing debt crisis in China, which has had a negative impact on economic growth over the past three years. China’s property market plays a crucial role in copper demand, and concerns regarding this sector have taken a toll on copper prices throughout the past year.
