Gold prices remained within a narrow trading range on Wednesday as the market eagerly anticipated developments in the negotiations concerning the US debt ceiling. Meanwhile, copper prices experienced a decline, reaching their lowest point in six months due to indications of a global slowdown in manufacturing activity.
The focus was primarily on the release of the minutes from the Federal Reserve’s May meeting later in the day, as investors sought additional insights into the trajectory of US interest rates for the rest of the year.
After failing to maintain the crucial $2,000 level, gold has been trading within a tight band of $1,950 to $1,980 per ounce for nearly a week. The uncertainty surrounding a potential US debt default has persisted, with ongoing negotiations between Democratic and Republican lawmakers yielding no agreement thus far.
This situation is concerning given the approaching June deadline for a default, which could have severe repercussions on the global economy.
As of 20:12 ET (00:12 GMT), spot gold remained unchanged at $1,975.63 per ounce, while gold futures edged up by 0.1% to $1,977.45 per ounce.
Nevertheless, gold continued to attract safe-haven bids as traders positioned themselves for an anticipated deceleration in global economic activity throughout the year. On Tuesday, a series of purchasing managers’ index (PMI) readings that fell short of expectations further fueled this perception, adversely impacting industrial metals.
Copper prices plummeted to nearly a six-month low following disappointing preliminary manufacturing PMI figures from the US, eurozone, and the UK in May. These readings pointed to a sustained slowdown in global manufacturing activity, which is projected to significantly dampen copper demand.
The red metal had already been grappling with significant losses in May, prompted by unexpected deceleration in Chinese manufacturing activity. China, as the world’s largest copper importer, is striving to bolster economic growth as it emerges from three years of COVID-19 lockdowns.
On Wednesday, copper futures inched up by 0.2% to $3.6452 per pound, but remained close to their lowest levels since late November.
Broader metal markets faced additional pressure due to a resurgence in the US dollar, as traders speculated that the Federal Reserve would maintain higher interest rates for an extended period in the current year.
While the central bank has signaled a potential pause in its rate hike cycle, it is anticipated to keep rates near 15-year highs for the remainder of the year due to persistent inflationary pressures.
Elevated interest rates create headwinds for metal prices by increasing the opportunity cost of holding non-yielding assets. This trend adversely impacted metal prices throughout 2022 and is expected to persist this year.
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