Gold prices experienced a drop on Monday, marking a reversal after a recent surge driven by increased demand for safe haven assets amid the Israel-Hamas conflict. The yellow metal had seen a substantial gain of over 5% the previous week, largely due to investors seeking refuge in safe assets.
All eyes were on the potential spillover of the Israel-Hamas conflict into the broader Middle East region, particularly as Israel prepared for a ground offensive in the Gaza Strip.
Spot gold fell 0.7% to $1,920.07 per ounce, while gold futures expiring in December declined 0.4% to $1,933.15 per ounce by 00:15 ET (04:15 GMT).
The appeal of gold has been hampered by a more hawkish stance from the U.S. Federal Reserve, driven by stronger-than-expected U.S. inflation data. This posture is expected to keep interest rates at elevated levels for an extended period, which, in turn, limits the potential for significant gains in the yellow metal.
Despite its recent rally driven by safe haven demand, the U.S. dollar has remained the preferred safe haven asset, with inflows pushing it close to a 10-month peak.
Higher interest rates negatively impact gold, as they increase the opportunity cost of holding the precious metal. This factor has hindered substantial gains in gold prices, even as global economic concerns have amplified the demand for safe haven assets.
Copper Rebounds with China GDP in Focus
In the realm of industrial metals, copper prices saw a notable rise on Monday after coming close to a five-month low in the prior week. Copper futures increased by 0.5% to $3.5907 per pound.
The primary focus for the week will be on key economic indicators from China, a major importer of copper. Of particular interest is the reading on third-quarter gross domestic product (GDP), which is anticipated to reveal a further weakening of Chinese economic growth in the previous quarter. This comes as business activity in China displayed minimal improvement despite certain stimulus measures.
Such a trend could negatively impact Chinese copper demand and potentially lead to more weakness in the red metal in the coming weeks. Concerns over China’s economic conditions have been a significant factor affecting copper prices over the past year.
The People’s Bank of China is also expected to make a decision regarding its key loan prime rates this week, although a change in these rates appears unlikely.