Gold prices stabilize close to their highest level in a month on Thursday, prompted by the release of weaker-than-expected U.S. inflation data. This data has led to speculation of a less aggressive approach by the Federal Reserve.
Meanwhile, copper prices are bolstered by the possibility of additional stimulus measures in China, a major importer of the metal.
The yellow metal experienced its most significant intraday increase in over two months on Wednesday, following a decline in the value of the dollar and Treasury yields. This decline was a result of the June U.S. consumer price index (CPI) inflation growing less than anticipated.
The CPI reading indicates that the Federal Reserve’s assertive interest rate hikes over the past year are proving effective, potentially leading to an earlier-than-expected adjustment in the bank’s hawkish stance.
This scenario suggests a reduction in the pressure on gold caused by high interest rates, which have heavily influenced the precious metal over the past year. High lending rates increase the opportunity cost of holding non-yielding assets like gold.
The weakened dollar, which reached nearly 15-month lows following the CPI reading, greatly benefits gold and other commodities priced in the U.S. currency.
As of 20:48 ET (00:48 GMT), spot gold maintains stability at $1,957.07 per ounce, while gold futures remain unchanged at $1,961.45 per ounce. Both instruments experienced a robust intraday gain of approximately 1.3% on Wednesday, marking their most significant increase since early May.
Fed’s July Rate Hike Prospects Persist
Despite the softer CPI reading, inflation still exceeds the Federal Reserve’s annual target of 2%. This is likely to result in further interest rate hikes by the central bank in the near future, with market expectations broadly indicating a minimum 25 basis point raise during the late-July meeting.
Several Fed officials have also hinted at additional rate hikes in the coming months, cautioning that core inflation remains persistently high and poses a potential risk of becoming entrenched. Although June’s core CPI reading was lower than anticipated at 4.8%, it remains relatively elevated, significantly surpassing the headline figure of 3% growth.
Earlier this year, the Fed indicated a potential peak rate increase of at least 50 basis points above the current 5.25%. However, the soft labor data and weak CPI reading may prompt a shift in this stance during the July meeting.
Copper Bolstered by Weaker Dollar and Speculation of China’s Stimulus Measures
Among industrial metals, copper prices continue to rise on Thursday, reaching a three-week high. The soft U.S. inflation data has sparked expectations that global economic growth will not deteriorate as much as initially feared this year.
Copper futures advance by 0.2% to $3.8595 per pound, building on a 2.4% rally from the previous session.
This surge in the red metal is also fueled by speculation that China, the world’s largest importer of copper, will implement further stimulus measures to support its slowing economic recovery.
Numerous reports from Chinese state media outlets indicate that the government is nearing the announcement of additional fiscal spending.
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