Gold prices bounced back on Friday, recovering from recent losses after the Bank of Japan took markets by surprise with some unexpected hawkish signals. However, the strength of the dollar tempered the allure of bullion.
In parallel, copper prices also made a robust recovery on Friday, outpacing gold’s gains due to reduced fears of a U.S. recession, which bolstered demand for the red metal. Additionally, speculations regarding further Chinese stimulus provided further support to copper’s upward trend.
The markets turned somewhat risk-averse following the Bank of Japan’s indication of a more flexible approach to its yield curve control policy, hinting at a future shift away from its ultra-dovish stance. While this could potentially exert pressure on gold in the long term, in the short term, the BOJ’s announcement led investors to seek safe-haven assets.
At 01:21 ET (05:21 GMT), spot gold rose by 0.3% to $1,951.49 an ounce, while gold futures expiring in August saw a 0.2% increase, reaching $1,950.15 an ounce.
Nonetheless, despite Friday’s relief for gold, it was still dealing with significant losses from the previous session due to a stronger-than-expected second-quarter growth of the U.S. economy. The data bolstered the dollar and caused gold to plunge by over 1% as traders anticipated that the robust U.S. economic performance would provide the Federal Reserve with room for further interest rate hikes.
This economic reading came just a day after the Federal Reserve’s interest rate hike, during which they left open the possibility of at least one more increase this year, owing to inflation continuing to trend above the central bank’s target range.
The rising U.S. interest rates pose challenges for gold and other metals, as they increase the opportunity cost of holding non-yielding assets. As a result of the strong GDP reading, gold wiped out all gains for the week and now trades approximately 0.8% lower.
In contrast, copper prices saw a sharp rise on Friday, recovering from substantial losses in the previous session. Initially affected by a stronger dollar, traders reinvested in copper, optimistic that the world’s largest economy would avoid a recession this year.
Copper futures surged by 0.8% to $3.8773 a pound, achieving a 1.6% gain for the week.
Furthermore, copper prices benefited from the possibility of additional stimulus measures in China, the top importer of the metal. Several key Chinese officials indicated this week that the government would introduce more policy support to stimulate a slowing economic recovery.
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