Gold prices experienced a dip on Wednesday, influenced by the renewed vigor in the U.S. dollar and bond yields, as investors exercised caution ahead of a crucial U.S. inflation report scheduled for later in the day.
The price of bullion dropped to an over two-week low as market participants positioned themselves for the possibility of a more robust inflation reading. This anticipation was fueled by increased fuel costs and robust consumer spending.
Investors turned to the dollar as their preferred safe-haven asset, with the inflation data on Wednesday also expected to set the tone for the Federal Reserve meeting next week. The greenback hovered just below a six-month peak, while benchmark 10-year Treasury yields remained close to a 20-year high.
Spot gold witnessed a 0.1% decrease, settling at $1,911.66 per ounce, while gold futures, set to expire in December, saw a 0.1% decline, reaching $1,933.85 per ounce as of 00:32 ET (04:32 GMT).
CPI Reading Awaited Ahead of Fed Meeting
The forthcoming Consumer Price Index (CPI) data is anticipated to reveal a 0.6% inflation growth rate for August, marking an acceleration from the 0.2% monthly rate observed in July. Core inflation is also expected to maintain its steadiness at 0.2%.
A stronger indication of U.S. inflation will provide the Federal Reserve with greater motivation to raise interest rates or potentially maintain them at elevated levels for an extended period. A robust reading may also elicit more hawkish commentary from the Federal Reserve during its meeting next week, although it is widely expected that the central bank will maintain its current rate pause.
Gold and other precious metals tend to perform poorly when interest rates rise, as it increases the opportunity cost of holding non-yielding assets. This concept weighed on gold throughout the past year and restrained any significant rebounds in the price of the yellow metal.
Expectations suggest that U.S. interest rates will remain elevated at least until mid-2024, limiting the prospects for a gold price recovery. Additionally, reduced expectations of a recession occurring this year indicate subdued demand for gold as a safe-haven asset.
Nevertheless, weaknesses in other major economies could potentially drive capital flows into gold.
Copper Prices Decline as China’s Optimism Wanes
In the realm of industrial metals, copper prices edged downward on Wednesday, reversing some of their recent gains as a rally driven by China began to lose steam.
Copper futures experienced a 0.3% drop, settling at $3.7780 per pound, following a 0.4% decline in the previous session.
While recent data did demonstrate some improvements in China’s economy, overall sentiment toward the world’s largest copper importer remained cautious, particularly as investors grew impatient with Beijing’s cautious approach to implementing additional stimulus measures.
The focus now turns to industrial production and retail sales data for August, scheduled for release on Friday, as investors seek further insights into economic activity.
