Gold prices experienced a slight increase on Friday as the dollar pulled back from a six-month high. However, the outlook for gold remains weak due to the prospect of higher interest rates following a hawkish stance from the Federal Reserve.
The yellow metal had a relatively muted performance for the week, with concerns over rising interest rates dampening investor interest.
Gold futures, particularly the most-traded contract on the Comex expiring in December, rose by 0.2% on Friday to reach $1,943.44 per ounce by 00:52 ET (04:52 GMT). However, the contract was down by 0.1% for the week.
Spot gold also increased by 0.2% to reach $1,924.26 per ounce and was on track to end the week unchanged.
The Rise in Interest Rates Presents Challenges for Gold
Gold prices found some relief as the dollar retreated from its six-month highs in overnight trading. Nonetheless, the greenback remained relatively strong, driven by expectations of higher U.S. interest rates.
The Federal Reserve decided to keep rates unchanged during the week but cautioned that persistent inflation could lead to at least one more rate hike this year. The central bank also indicated that it is likely to maintain rates above 5% through 2024, which disappointed market expectations for at least four rate cuts next year.
The prospect of higher interest rates for an extended period poses challenges for gold since it increases the opportunity cost of investing in non-yielding assets. This trend has weighed on gold over the past year and offers limited upside potential for the precious metal.
Nonetheless, gold may benefit from short-term safe-haven demand, particularly amid growing concerns about a potential U.S. government shutdown. Although historically, gold hasn’t shown strong performance during past shutdowns, it could attract some bids if overall market sentiment deteriorates.
Copper Prices Recover Some Weekly Losses with More Focus on China Data
In the realm of industrial metals, copper prices saw an increase on Friday, recouping a portion of their losses for the week.
Copper futures rose by 0.5% to reach $3.7110 per pound but remained down by 2.4% for the week.
Market attention has now shifted to business activity data from several major economies, set to be released in the coming weeks.
China, the world’s largest copper importer, is scheduled to release its purchasing managers’ index (PMI) data for September next week, providing further insight into the country’s economic recovery. While August data indicated some signs of improvement, overall sentiment toward China remains largely negative in the markets.