In the ever-shifting landscape of global markets, gold prices experienced a dip below $1,950 in Asian trade on Tuesday. The descent was attributed to traders redirecting their focus toward the dollar in anticipation of crucial U.S. inflation data scheduled for later in the day. The impending release is expected to play a pivotal role in shaping the trajectory of interest rates.
Over the past two weeks, the precious metal faced a substantial bout of profit-taking, driving prices to a low not seen in over three weeks. The specter of potentially prolonged higher U.S. rates cast a shadow on gold’s prospects, contributing to the downturn.
As of 00:32 ET (05:32 GMT), spot gold slipped by 0.1% to $1,944.71 an ounce, while December gold futures fell by a similar margin to $1,948.25 an ounce.
The strength of the dollar and rising Treasury yields exerted pressure on gold prices, with market participants gravitating towards rate-sensitive assets ahead of the imminent release of the U.S. Consumer Price Index (CPI) data. Expectations surround a moderation in inflation for October, following two consecutive months of surpassing projections. This interpretation comes in the wake of warnings from Federal Reserve officials about persistent inflation potentially prompting further interest rate hikes.
The prospect of “higher-for-longer” rates tends to weigh on gold, as it amplifies the opportunity cost of investing in the precious metal. This trend has dominated gold’s performance over the past year, fostering an air of uncertainty regarding its future trajectory.
However, amidst these economic currents, there persists a counterbalance. Expectations of a global economic slowdown have maintained interest in gold, particularly with upcoming data hinting at the Eurozone potentially entering a technical recession in the third quarter. Additionally, the ongoing Israel-Hamas conflict has spurred some demand for gold as a safe-haven asset, although recent weeks have witnessed a diminishing risk premium being factored in by traders.
In the realm of industrial metals, copper faced its own challenges on Tuesday, experiencing a decline in the wake of weak Chinese economic data. Copper futures expiring in December fell by 0.3% to $3.6603 a pound.
The world’s largest copper importer, China, witnessed a significant drop in new loans through October, signaling diminishing liquidity levels despite recent government stimulus measures. Investors are now keeping a keen eye on forthcoming economic indicators from China, including industrial production, retail sales, and fixed asset investment readings scheduled for Wednesday.