Gold prices showed signs of steadying in the Asian trading session on Thursday, attempting to recover from a three-day downward trend. The recent strengthening of the US dollar, triggered by hawkish signals from the Federal Reserve, has weighed heavily on gold prices, causing it to slip below the pivotal $1,900 an ounce level this week. This decline in gold value comes against the backdrop of the elevated dollar and Treasury yields, leading to a five-month low in gold prices.
Despite escalating concerns about a potential economic slowdown in China, which usually prompts demand for safe-haven assets, gold has failed to garner significant interest from investors. The allure of higher yields has kept traders primarily invested in the US dollar.
At the start of the trading day, spot gold held steady at $1,892.62 per ounce – its lowest level in five months. Simultaneously, gold futures dipped by 0.3% to $1,921.95 per ounce, marking a five-week low, as of 00:05 ET (04:05 GMT).
Fed’s Hawkish Stance Boosts Dollar and Yields
The release of the Federal Reserve’s minutes from its July meeting on Wednesday sent reverberations through financial markets. The minutes they were revealed that a majority of the rate-setting committee members supported the notion of raising interest rates to tackle persistent inflationary pressures. Although there was a divergence of opinions on the necessity for further rate hikes, the overall sentiment indicated potential upside risks to inflation, which could lead to more rate increases by the central bank. The latest data also reflected higher US inflation rates for July.
In response to these minutes, the US dollar surged to a nearly two-month high, and benchmark 10-year Treasury yields climbed to their highest levels in almost a decade. Some products even neared levels not seen since the 2008 financial crisis.
The anticipation of elevated US interest rates doesn’t bode well for gold, as it escalates the opportunity cost associated with investing in assets that do not yield returns. This prevailing sentiment had already impacted gold’s performance throughout 2022 and is expected to exert downward pressure until the Federal Reserve initiates a rate reduction.
Analysts Predict Extended Period of High Rates
Market experts anticipate that the Federal Reserve will maintain higher interest rates for at least the next six months. Prominent financial institution Goldman Sachs has forecasted a potential rate reduction only by mid-2024, signalling a prolonged period of challenging conditions for the precious metal.
Copper Faces Economic Strain in China
Copper prices remained subdued on Thursday, hovering near their lowest levels since late May. Concerns over China’s deteriorating economic situation have continued to dampen sentiment in markets. The nation’s financial struggles could potentially curb copper demand in China, the world’s largest copper importer.
Copper futures eked out a 0.1% rise to reach $3.6517 per pound after experiencing significant declines earlier in the week.
Persistent weak economic data from China, coupled with apprehensions about defaults and contagion in the country’s property market, have contributed to this subdued outlook. Fitch Ratings has even hinted at the possibility of downgrading China’s sovereign rating, especially if issues within corporate debt begin to impact the government’s financial stability. However, Fitch maintains that the likelihood of such a scenario occurring in the short term is minimal. The rating agency expects that China’s property market will undergo more profound structural changes in the coming period.