Gold prices saw minimal movement on Tuesday as the U.S. dollar paused its recent decline, with key U.S. inflation data set to be released later in the week. Meanwhile, copper prices held onto recent gains, driven by optimism regarding China’s economic situation.
Gold prices have experienced some relief in recent sessions as the U.S. dollar pulled back from its nearly six-month high, driven by profit-taking. However, the dollar stabilized during Asian trading hours on Tuesday, remaining close to its recent highs.
The outlook for U.S. inflation and interest rates remains a significant factor for gold prices in the coming months, with expectations of continued pressure. Rising interest rates, driven by increasing inflation, have pushed up the opportunity cost of investing in gold, negatively impacting its appeal as an asset.
Spot gold steadied at $1,922.61 per ounce, while gold futures expiring in December slipped 0.1% to $1,945.35 per ounce as of 00:54 ET (04:54 GMT).
Focus on U.S. CPI and Upcoming Fed Meeting
Attention is now directed at the August Consumer Price Index (CPI) reading in the United States, expected to reveal faster inflation growth compared to July. This acceleration in inflation is attributed to higher fuel costs and resilient retail spending.
The CPI data is expected to set the tone for the Federal Reserve meeting scheduled for next week. A stronger inflation reading could lead to a more hawkish outlook from the Fed, potentially keeping interest rates higher or even pushing for further hikes later in the year.
While the central bank is widely anticipated to keep rates unchanged in September, an increased focus on inflation might lead to a more hawkish stance. The Fed is also expected to maintain interest rates at levels not seen in over 20 years until at least mid-2024.
This scenario presents a challenging outlook for gold, as the dollar and Treasury yields are likely to rise further in a high-interest-rate environment. Reduced concerns about a U.S. recession have also dampened the demand for gold as a safe-haven asset, although increased trade tensions between the U.S. and China have provided some support to bullion.
Copper Rebounds on Positive Economic Data from China
In the industrial metals sector, copper prices continued to rise on Tuesday, benefiting from favorable economic data out of China.
Copper futures advanced by 0.1% to $3.8057 per pound, following a more than 1% rally in the previous session.
Recent data revealed significant improvements in lending activity in China during August, supported by ongoing monetary measures from the government. Additionally, data from the weekend showed that Chinese consumer inflation had moved out of deflationary territory in August, raising hopes that the country’s economy was rebounding from a sharp slowdown earlier in the year.
However, markets remain somewhat cautious about the world’s largest copper importer. According to a Reuters poll, China’s economy is expected to grow by 5% in 2023, in line with a conservative government forecast, with growth further slowing in 2024.
