November 6, 2023 – In Asian trade today, gold prices dipped as a potential pause in the Federal Reserve’s rate hikes brought some relief, although this was countered by traders favoring risk-driven assets over the yellow metal.
Last week, gold exhibited strength as the release of weaker-than-expected U.S. nonfarm payrolls data, coupled with less hawkish signals from the Federal Reserve, triggered a substantial decline in the dollar and Treasury yields. However, any significant upside potential for gold remained limited, as traders largely shifted towards risk-driven assets, including stocks and currencies. This shift was further exacerbated by a decrease in safe-haven demand for gold, attributed in part to a diminishing risk premium associated with the Israel-Hamas conflict, which showed little indication of de-escalation.
Amid ongoing hostilities and Israel’s rejection of ceasefire calls, reports suggested that the Russian mercenary group Wagner might be supplying air defense systems to Hezbollah. The uncertainty surrounding the conflict had initially driven considerable gains in gold prices throughout October, but with the likelihood of the conflict spilling over into the broader Middle East region diminishing, traders opted to secure their profits on the precious metal.
As of 03:11 GMT, spot gold experienced a 0.5% decline, settling at $1,984.24 per ounce. Concurrently, gold futures, set to expire in December, saw a 0.4% reduction, reaching $1,991.15 per ounce at 23:11 ET.
Diminished Prospects for Gold as the Federal Reserve’s Stance Softens
Traders are currently pricing in a 95.2% likelihood that the Federal Reserve will not pursue further rate hikes. It is expected that the central bank may commence rate reductions as early as June 2024. However, even with potential rate cuts on the horizon, the Federal Reserve has conveyed its intention to maintain its benchmark rate above 5% until at least the end of 2024. The persistently higher U.S. interest rates are likely to exert pressure on non-yielding assets, such as gold, as has been witnessed over the past year.
Copper Prices Surge Amid Improving Market Sentiment
In contrast to the downturn in gold, copper prices exhibited significant gains on Monday as market risk appetite improved. Copper futures expiring in December recorded a 0.7% increase, reaching $3.6987 per pound. These gains were fueled by optimism that an end to the Federal Reserve’s hiking cycle could alleviate the pressure on global industrial activity.
Market focus also turned to crucial trade and inflation data from China, the world’s largest copper importer. The data, set to be released on Tuesday, is anticipated to provide additional insights into copper imports, which have stagnated over the past year due to slowing economic growth.
