Gold prices displayed minimal fluctuations on Tuesday as the U.S. dollar stabilized following recent declines, just ahead of crucial U.S. inflation data expected later this week. In the meantime, copper prices continued to climb, bolstered by optimism that China’s economic woes may have reached a turning point.
Bullion prices found some respite in recent sessions as the dollar retraced from its near six-month peak, primarily due to profit-taking activities. However, the greenback regained its footing in Asian trading on Tuesday, staying well within sight of recent highs.
The outlook for U.S. inflation and interest rates remained elevated, suggesting ongoing pressure on gold prices in the months ahead. This trend had also exerted downward pressure on gold over the past year, with rising interest rates increasing the opportunity cost of holding the precious metal.
Spot gold remained steady at $1,922.61 per ounce, while gold futures set to expire in December dipped by 0.1% to $1,945.35 per ounce as of 00:54 ET (04:54 GMT).
Eyes on U.S. CPI and Fed Meeting
The primary focus now shifts to the Consumer Price Index (CPI) inflation data for August, expected to reveal a faster rate of inflation compared to July. Higher fuel costs and resilient retail spending are believed to have driven this anticipated uptick in U.S. inflation.
The outcome of this reading is also poised to set the tone for the upcoming Federal Reserve meeting next week, with higher inflation potentially nudging the central bank toward maintaining or further raising interest rates later this year.
Although it’s widely anticipated that the Fed will hold rates steady in September, a stronger inflation reading could prompt a more hawkish stance from the central bank. The Federal Reserve is also prepared to maintain rates at levels unseen in over two decades, potentially until at least mid-2024.
In such an environment, gold faces a challenging outlook, given that both the dollar and Treasury yields are likely to continue rising in a high-interest-rate landscape. While receding concerns about a U.S. recession have reduced the appeal of gold as a safe-haven asset, recent trade tensions between the U.S. and China have provided some support to the precious metal.
Copper’s Resilience Amid Optimism in China
Turning to industrial metals, copper prices continued their ascent on Tuesday, benefiting from positive economic indicators out of China.
Copper futures recorded a 0.1% rise, reaching $3.8057 per pound, building on a previous-session gain of over 1%.
Data released on Monday indicated significant improvement in Chinese lending activity throughout August, driven by ongoing monetary support from the government.
These developments followed weekend data revealing a recovery in Chinese consumer inflation from deflationary territory in August. Such trends have fueled hopes that China’s economy may be reversing course after experiencing a substantial slowdown this year.
However, market sentiment toward the world’s largest copper importer remains somewhat cautious. A Reuters poll suggests that China’s economy is expected to grow by 5% in 2023, aligning with a conservative government forecast. Furthermore, growth is anticipated to decelerate further in 2024.
