Gold prices extended their recent decline as ongoing concerns about rising interest rates, following hawkish signals from the Federal Reserve, led investors to favor the dollar.
The dollar reached 10-month highs this week, largely replacing gold as a preferred safe haven as interest rates climbed. With the Fed now signaling one more rate hike in 2023 and fewer rate cuts next year, this trend is expected to continue.
The surge in Treasury yields also dampened gold’s appeal, with the 10-year benchmark reaching a 16-year high this week.
Spot gold, representing real-time trade in physical bullion, dropped 0.2% to $1,897.49 an ounce, slipping below the $1,900 level for the first time in a month. Gold futures for December fell 0.2% to $1,914.95 an ounce, also trading at one-month lows. Both gold instruments extended losses into a third straight session.
Rising interest rates increase the opportunity cost of holding assets like gold that do not yield interest. This factor has weighed on gold prices over the past year.
Gold Finds Little Safe Haven Demand as U.S. Government Shutdown Looms
Gold saw limited safe haven flows even as concerns grew over a potential U.S. government shutdown. Congress had until the end of September to pass a spending bill, but policymakers showed little sign of reaching a consensus on a broader spending bill.
Analysts cautioned that a shutdown in 2023 could have significant ramifications for the U.S. economy, especially with high interest rates and stubborn inflation. However, this notion did not appear to drive significant inflows into gold, as past shutdowns had limited impact on risk-driven assets, particularly stocks.
Copper Weakens Despite Positive Chinese Data, Deepening Property Market Jitters
Copper prices declined on Wednesday, despite data showing that China’s industrial profits rebounded in August after nearly a year-long slump.
Copper futures fell 0.2% to $3.6402 a pound, nearing a one-month low.
Optimism over the Chinese data was tempered by increasing concerns about a property market crisis. Media reports indicated that the chairman of the beleaguered developer China Evergrande Group had been placed under police surveillance, following the suspension of its debt restructuring plan due to an investigation into its unit Hengda Real Estate.
Evergrande is the world’s most indebted property developer and is at the center of a deepening debt crisis in China, which has negatively impacted economic growth over the past three years.
China’s property market is a key source of copper demand, and concerns about the sector have weighed on copper prices over the past year.