Gold prices climbed on Monday as investors anticipated that the Federal Reserve would maintain its current interest rates this week. Additionally, concerns regarding a potential U.S. government shutdown contributed to safe-haven demand for the precious metal.
Recent data reflecting strong inflation and economic activity failed to convince the markets that a U.S. interest rate hike was imminent. However, the rise of the U.S. dollar to six-month highs following the data limited gold’s gains.
Gold prices are also expected to benefit from safe-haven demand due to concerns about a U.S. government shutdown. Top Republican lawmakers are currently in disagreement over defense spending and broader fiscal spending cuts. Lawmakers have about two weeks to pass a new spending bill and avoid a shutdown.
Historically, gold has seen limited gains during past government shutdowns. For instance, during the 2018-2019 shutdown, which was the longest in U.S. history, gold prices increased by only $20 over 35 days.
Spot gold rose by 0.3% to reach $1,929.32 per ounce, while gold futures for December delivery increased by 0.2% to $1,950.15 an ounce. Both instruments recorded a 0.3% gain last week.
Federal Reserve Expected to Maintain Rates, but Hawkish Outlook Possible
The Federal Reserve is widely anticipated to keep interest rates unchanged at the conclusion of its two-day meeting on Wednesday. However, market participants remain cautious about the central bank’s outlook. Recent increases in inflation and the resilience of the U.S. economy provide the Fed with more room to raise interest rates further.
Despite the possibility of another rate hike, the Fed is expected to maintain rates at levels not seen in over 20 years until at least mid-2024. This has weighed on gold prices over the past year and is likely to limit significant upward movement in the precious metal.
Rising interest rates increase the opportunity cost of investing in non-yielding assets, presenting a challenging outlook for the gold market.
Other Central Banks’ Decisions and Copper Market Concerns
Aside from the Fed, central bank decisions in China, the UK, and Japan are also scheduled for this week. Among these, only the Bank of England is expected to raise interest rates.
In the industrial metals market, copper prices remained relatively unchanged on Monday due to renewed concerns about China, a major importer of the metal. Concerns primarily revolved around China’s property market.
Copper futures stabilized at $3.7953 per pound after gaining over 2% last week. While some recent economic indicators hinted at a recovery in China, the country’s property market faces new challenges, including bond payments for developer Country Garden Holdings.
Chinese authorities also detained employees of China Evergrande Group’s wealth management unit, raising concerns about increased government scrutiny of the property sector.
The People’s Bank of China is expected to keep its loan prime rates at record lows this Wednesday as part of efforts to support economic growth. However, the outlook for China’s property market, a key driver of copper demand, remains uncertain.