Gold prices remained relatively stable on Friday, but for the month of June, they suffered significant losses due to robust U.S. economic data fueling risk appetite and concerns about potential interest rate hikes by the Federal Reserve.
Over the course of this week, the precious metal experienced a decline to three-month lows, mainly influenced by hawkish statements from Fed officials, with Chair Jerome Powell reiterating the possibility of at least two rate increases this year.
Furthermore, an unexpected upward revision in U.S. gross domestic product data showcased the country’s economic resilience, weakening gold’s appeal as a safe-haven asset. Investors also became increasingly concerned that the Fed may have ample room to continue raising interest rates, which further dampened gold’s outlook.
At the end of trading on Friday, spot gold was nearly unchanged at $1,908.01 per ounce, while gold futures dropped marginally by 0.1% to $1,915.95 per ounce by 21:59 ET (01:59 GMT). However, both spot and futures contracts experienced a decline of 2.7% and 3.3%, respectively, throughout the month of June.
Gold’s current focus lies on a potential break below the crucial support level of $1,900. Such an event could trigger technical selling, as spot gold approached the $1,891 level on Thursday before recovering slightly, but still hovering close to the $1,800s. Similarly, gold futures narrowly escaped a drop below $1,900 on Thursday.
The strength of the U.S. dollar, which reached a two-week high following positive GDP data and Powell’s comments, added further pressure on gold prices. The prospect of rising interest rates negatively impacts gold’s attractiveness as it increases the opportunity cost of holding the precious metal compared to the dollar and government debt. This sentiment had already affected gold throughout 2022 and continued to weigh on the metal in 2023.
Apart from the Federal Reserve’s stance, hawkish signals from the European Central Bank and the Bank of England also contributed to the downward pressure on gold this week, particularly due to persistent inflation in both regions.
In contrast, copper prices managed to rise on Friday, despite indications of economic challenges in China, the world’s largest copper importer.
Copper futures increased by 0.4% to reach $3.7127 per pound, despite a 2.7% loss for the week. However, for the month of June, futures experienced a gain of nearly 2%, recovering from the six-month lows seen in May.
China’s manufacturing sector showed signs of contraction through June, and growth in the services sector slowed, indicating an economic rebound in the country remained elusive.
While the weak economic indicators in China might imply softer copper demand, they could also prompt Beijing to introduce further stimulus measures to bolster economic growth.
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