Gold prices experienced a decline on Wednesday, as they grappled with renewed vigor in the dollar and rising Treasury yields, with markets bracing themselves for a significant U.S. inflation report scheduled later in the day.
The precious metal found itself at a two-week low, reflecting market preparations for a potentially robust inflation report. This anticipation is fueled by surging fuel prices and robust consumer spending.
Investors are seeking refuge in the dollar, particularly given the importance of Wednesday’s inflation report in setting the stage for the upcoming Federal Reserve meeting next week. While the greenback remains below a six-month peak, benchmark 10-year Treasury yields continue to loom near a 20-year high.
As of 00:32 ET (04:32 GMT), spot gold registered a 0.1% decrease, trading at $1,911.66 per ounce, while December gold futures fell by 0.1% to $1,933.85 per ounce.
CPI Report Looms Large Ahead of Fed Meeting The forthcoming Consumer Price Index (CPI) data is poised to reveal that inflation accelerated to 0.6% in August, up from the 0.2% monthly pace observed in July. Core inflation is also anticipated to hold steady at 0.2%.
A robust indication of U.S. inflation provides the Federal Reserve with added motivation to raise interest rates or maintain them at elevated levels for an extended period. A strong inflation reading could also provoke a more hawkish stance from the Fed next week, even though the central bank is widely expected to keep rates steady for the time being.
The ascent of interest rates does not bode well for gold and other precious metals, as it amplifies the opportunity cost of investing in non-yielding assets. This concept has weighed on gold throughout the past year and has constrained any significant recovery in the precious metal.
Forecasts anticipate that U.S. rates will remain elevated until at least mid-2024, thus limiting the potential for a gold rebound. Furthermore, reduced expectations of a recession this year signal diminished safe-haven demand for gold.
Nevertheless, weaknesses in other major economies may channel some capital into gold.
Copper Faces a Slip as China’s Optimism Fades In the realm of industrial metals, copper prices experienced a slight downturn on Wednesday, reversing some recent gains as optimism fueled by China’s economic performance waned.
Copper futures declined by 0.3% to $3.7780 per pound, following a 0.4% loss in the previous session.
Despite recent data suggesting improvements in China’s economy, overall sentiment toward the world’s largest copper importer remains subdued, particularly as investors grow frustrated with Beijing’s cautious approach to implementing further stimulus measures.
The focus now turns to industrial production and retail sales data for August, scheduled for release on Friday, which could provide further insights into economic activity.