ASIA — Gold prices remained largely unchanged on Thursday, as the market focused on key upcoming U.S. inflation data that could provide further insight into the Federal Reserve’s stance on interest rates. While gold held its ground, industrial metal prices, particularly copper, saw gains driven by optimism surrounding potential fiscal stimulus measures from China, the world’s largest copper importer.
Despite the uptick in copper, a stronger U.S. dollar continued to weigh on metal prices, as investors recalibrated their expectations for the Federal Reserve’s monetary policy, pricing in a slower pace of interest rate cuts. This expectation has exerted downward pressure on gold, pulling it back from recent record highs.
Gold Prices Hold Steady Amid Dollar Strength
Gold prices saw a modest rise during Asian trading hours on Thursday. Spot gold inched up by 0.2%, reaching $2,613.15 per ounce, while gold futures, set to expire in December, also rose by 0.2%, reaching $2,630.20 per ounce by 00:16 ET (04:16 GMT). This movement comes after a series of declines over the past week, largely driven by the strengthening U.S. dollar.
A stronger dollar typically makes gold more expensive for holders of other currencies, thus dampening demand. The recent performance of the U.S. dollar has been buoyed by strong economic data, particularly in the labor market, which has led traders to anticipate a more cautious approach to interest rate cuts by the Federal Reserve. This, in turn, has put pressure on gold and other non-yielding assets.
U.S. CPI Data in Focus
Traders are now eagerly awaiting the release of the U.S. Consumer Price Index (CPI) data, scheduled for later on Thursday, which could offer more clarity on the Federal Reserve’s future monetary policy decisions. The CPI is a critical indicator of inflation, and the upcoming reading is expected to show that headline inflation eased slightly, while core inflation—excluding volatile items like food and energy—remained stubbornly high.
Persistently high core inflation, coupled with a robust labor market, reduces the likelihood of aggressive interest rate cuts by the Federal Reserve. Last week’s strong payrolls data reinforced this view, with traders now largely discounting the possibility of another 50 basis point (bps) rate cut in November. Instead, the market expects the Fed to take a more measured approach, opting for smaller, gradual cuts.
The minutes from the Federal Reserve’s September meeting revealed that while policymakers supported a 50 bps rate cut, they were non-committal regarding the pace of future rate reductions. The uncertainty surrounding the Fed’s next move has kept markets, including gold, on edge.
Impact of Smaller Rate Cuts on Gold
Smaller, more gradual rate cuts are generally negative for gold and other non-yielding assets, as higher interest rates increase the opportunity cost of holding gold. In a low-interest-rate environment, gold tends to thrive, as it becomes a more attractive hedge against inflation and economic instability. However, if the Fed takes a cautious approach to lowering rates, the appeal of gold may diminish, leading to softer demand and potentially lower prices.
Despite these challenges, gold managed to post modest gains on Thursday. Other precious metals also saw slight increases, though they continued to nurse losses from earlier in the week. Platinum futures rose by 1%, reaching $969.75 per ounce, while silver futures inched up by 0.2%, trading at $30.742 per ounce.
Copper Rebounds on China Stimulus Hopes
Meanwhile, copper prices edged higher on Thursday, recovering some of the losses incurred earlier in the week. Benchmark copper futures on the London Metal Exchange (LME) rose by 0.6%, reaching $9,749.50 per ton. December copper futures followed suit, rising 0.5% to $4.4355 per pound.
The recent recovery in copper prices was driven by renewed optimism surrounding China’s potential fiscal stimulus measures. China, the largest consumer of copper globally, has been grappling with a prolonged economic slowdown, exacerbated by deflationary pressures and a severe property market crash.
Earlier in the week, copper prices had fallen sharply as investors were underwhelmed by China’s monetary stimulus measures, which did little to boost market sentiment. However, on Thursday, Beijing hinted at more concrete fiscal measures aimed at stimulating growth. The Chinese Ministry of Finance is set to hold a briefing on Saturday, where it is expected to release more details on its fiscal stimulus plans.
China’s Role in the Global Copper Market
As the largest importer of copper, China’s economic health is closely tied to the metal’s global demand and prices. Copper is a critical component in construction, manufacturing, and renewable energy sectors—industries that are heavily reliant on China’s economic activity. When China’s economy slows, as it has in recent months, demand for copper weakens, leading to a drop in prices.
Investors have been eagerly awaiting targeted fiscal measures from the Chinese government, which could help boost demand for copper. These measures are seen as essential for reinvigorating China’s economy, which has been struggling with deflation and a property sector that is in deep distress. A stronger economic recovery in China would likely lead to increased demand for copper, providing much-needed support to prices.
Outlook for Gold and Copper
The outlook for both gold and copper remains closely tied to macroeconomic developments in the U.S. and China. For gold, much will depend on the Federal Reserve’s approach to interest rates, which will largely be influenced by inflation data and labor market conditions. If inflation remains stubbornly high and the labor market continues to show strength, the Fed is likely to take a cautious approach, resulting in a slower pace of rate cuts. This would be bearish for gold in the short term, although geopolitical tensions and other risks could still provide some support to the precious metal.
Copper’s future, on the other hand, hinges largely on China’s economic recovery. If Beijing’s upcoming fiscal stimulus measures are robust enough to lift demand, copper prices could see further gains. However, if the measures fall short of market expectations, copper may remain under pressure, especially as global economic growth slows.
Conclusion
Gold prices remained largely muted on Thursday as investors turned their attention to the U.S. inflation data, which is expected to provide more clues about the Federal Reserve’s future interest rate policy. A stronger dollar has kept pressure on gold, but the precious metal managed to post modest gains ahead of the CPI data release.
Meanwhile, copper prices saw a rebound, driven by hopes for fiscal stimulus measures from China, although the market remains cautious as details of the plan are yet to be unveiled. Both gold and copper are navigating complex economic landscapes, with their future trajectories closely tied to developments in the U.S. and China. As traders await more clarity from central banks and governments, these markets are likely to remain volatile in the coming weeks.
Related topics: