Gold prices experienced a slight increase on Friday, staying close to one-month highs as investors reevaluated their expectations for future U.S. interest rate hikes following softer-than-expected U.S. inflation data.
This surge marked the yellow metal’s strongest weekly gain since late-April, with a significant recovery from the $1,900 per ounce support level after both producer and consumer inflation data fell below expectations for June.
As a result, investors adjusted their outlook on gold and other non-yielding assets, anticipating a more favorable environment.
Additionally, the decline of the U.S. dollar to its lowest point in 15 months further bolstered the performance of gold and other commodities priced in the greenback. While spot gold remained relatively steady at $1,961.24 per ounce, gold futures saw a 0.1% rise to $1,965.25 per ounce at 00:53 ET (04:53 GMT). Both instruments were on track to register an approximate 2% increase for the week.
Peak Fed Rates in Focus as Inflation Dips
The decrease in U.S. inflation figures prompted traders to question whether the Federal Reserve would have sufficient motivation to execute two more rate hikes in the current year. While a 25 basis points rate hike later this month is widely anticipated, market speculation suggests that this increase may signify the end of the Fed’s ongoing rate hike cycle, with rates potentially remaining at 5.5% until next year.
This scenario favors gold prices since higher rates elevate the opportunity cost of holding non-yielding assets. However, the potential for further gains in gold is likely to be limited, considering that U.S. rates are currently at their highest point in over 15 years.
Federal Reserve officials cautioned that the central bank would require clearer signals of receding inflation. Governor Christopher Waller emphasized that the strength of the labor market and economic activity provides sufficient leeway for the Fed to continue raising interest rates.
Nevertheless, market indicators based on Fed Fund future prices suggest an increasing probability of U.S. rates peaking at 5.5% within this year.
Copper Retreats Ahead of Further Chinese Indicators
Among industrial metals, copper prices retreated on Friday as data revealed a decline in Chinese imports of the red metal during June. China, the world’s largest copper importer, faces challenges with a sluggish economic recovery, raising concerns about global copper demand.
Copper futures recorded a 0.4% decline, reaching $3.9385 per pound. However, they remained up by over 4% for the week, benefiting from the weakening U.S. dollar.
Attention has now shifted to Chinese gross domestic product (GDP) data scheduled for release next week, as it will provide insights into the economy’s strength during the second quarter. Additionally, market participants are keeping a close watch for potential stimulus measures in the world’s second-largest economy.
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