Gold prices experienced a significant decline on Thursday, reaching their lowest point in three months due to the resurgent strength of the dollar and Treasury yields. This drop followed Federal Reserve Chair Jerome Powell’s remarks, indicating a high likelihood of further interest rate hikes.
Similarly, copper prices were negatively impacted by concerns of additional rate hikes, as traders sold off the metal amid worries about a deceleration in global economic growth.
During a European Central Bank forum, Powell acknowledged the progress made by the central bank but emphasized the possibility of future interest rate increases.
Consequently, the value of the dollar and Treasury yields rose, dampening the outlook for non-yielding assets like gold and other metals. Market sentiments also began to incorporate a greater likelihood of a rate hike during the Federal Reserve’s upcoming late-July meeting.
As of 20:04 ET (00:04 GMT), spot gold stabilized at $1,908.85 per ounce, while gold futures experienced a 0.3% decline, reaching $1,916.75 per ounce.
Gold Faces Pressure as Market Anticipates a 25 Basis Points Hike in July
Powell’s remarks, coupled with his somewhat hawkish testimony before Congress the previous week, prompted the market to assign an approximately 80% probability of a 25 basis points rate hike by the Fed in July.
Although the Fed maintained interest rates during its June meeting, it indicated a more data-driven approach to future rate decisions. Given that U.S. inflation remains above the central bank’s target range, market participants braced themselves for additional hikes.
The rise in U.S. interest rates adversely affects gold and other metals due to the increased opportunity cost associated with holding non-yielding assets. This perception has weighed on gold throughout 2022 and has continued to keep the yellow metal trading in negative territory so far this year.
This week, particular attention is being paid to the upcoming release of the key personal consumption expenditures price index data, which serves as the Fed’s preferred inflation gauge. Scheduled for Friday, this report is expected to reveal persistent inflationary pressures experienced in May.
Other precious metals also experienced weakness on Thursday. Platinum futures declined by 0.1%, reaching a four-month low, while silver futures fell by 0.6%, remaining close to a one-month low.
Copper Affected by Gloomy Economic Outlook and Uncertainty Surrounding China
Copper prices remained relatively stable, albeit near a one-month low, on Thursday after experiencing a sharp decline over the past five sessions. Futures held steady at $3.7292 per pound, following a nearly 5% drop in the past week.
Concerns about a slowdown in industrial activity worldwide dampened copper’s appeal as traders worried about a corresponding decrease in demand for the red metal.
Uncertainty surrounding China, the largest copper importer globally, further intensified ahead of the release of key purchasing managers’ index data on Friday. This data is expected to offer valuable insights into the country’s economic rebound, which may indicate a deceleration.
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