In a remarkable turn of events, gold prices experienced an impressive surge on Monday as the dollar faced a setback prior to the release of crucial inflation data later this week. Concurrently, copper prices soared, buoyed by positive Chinese inflation data that hinted at signs of improvement in the economy.
After enduring substantial losses last week due to concerns over stubborn inflation and the anticipation of prolonged high U.S. interest rates, the yellow metal found solace as the dollar retreated from its six-month peak. Profit taking was observed on Monday.
The primary focus now rests on the release of U.S. consumer inflation data for August, scheduled for Wednesday. The upcoming figures are expected to show an increase from the previous month, potentially giving the Federal Reserve stronger motivations to maintain higher interest rates.
At 01:03 ET (05:03 GMT), spot gold witnessed a 0.4% surge, reaching $1,927.06 per ounce, while gold futures expiring in December climbed 0.4% to $1,950.45 per ounce.
U.S. Inflation and Fed Meeting Take Center Stage
Should U.S. inflation prove higher than anticipated, gold prices and the broader metal markets could face further losses, particularly with an upcoming Federal Reserve meeting on the horizon. Analysts predict that the consumer price index inflation for August will have grown by 0.6% compared to the previous month, reflecting an acceleration from July’s 0.2% gain.
While it is widely expected that the Federal Reserve will keep rates unchanged in September, persistent signs of stubborn inflation might prompt the central bank to consider further interest rate hikes later this year. U.S. interest rates have already reached their highest levels in over two decades.
Increased interest rates do not bode well for gold, as they raise the opportunity cost of investing in this non-yielding asset. Such a trade has negatively impacted gold throughout the past year, hindering any noteworthy recovery in the yellow metal thus far in 2023.
With higher U.S. rates come greater gains for the dollar and Treasury yields, which are projected to exert downward pressure on gold prices.
Copper Sprints Ahead on Positive Chinese Inflation
Within the realm of industrial metals, copper prices experienced a remarkable surge on Monday, primarily propelled by encouraging Chinese inflation data that was released over the weekend.
Copper futures leaped by 1.3%, reaching $3.7615 per pound, successfully rebounding from a three-week low.
The data unveiled over the weekend revealed that Chinese consumer inflation returned to positive territory in August, accompanied by a slower decline in producer price inflation when compared to earlier this year.
This data, coupled with Beijing’s introduction of additional supportive measures for the property sector, infused a sense of optimism regarding the economic recovery in the world’s largest importer of copper.
However, other August readings painted a mixed picture of the Chinese economy as it grapples with the challenges of a sluggish post-COVID recovery.