In Monday's Asian trading session, gold prices experienced a decline. The prospect of the Federal Reserve halting its series of rate hikes, which could have potentially offered support to the gold market, was overshadowed by traders redirecting their investments from the precious metal to assets with higher perceived risks. Last week saw a bolstering of gold prices, propelled in part by the U.S. nonfarm payrolls data that underperformed expectations. The Federal Reserve's unexpected dovish signals also contributed, leading to significant drops in both the U.S. dollar and Treasury yields.
However, this uplift in gold prices found its momentum checked as market participants increasingly favored risk-oriented assets such as equities and various currencies. The traditionally safe haven appeal of gold was further diminished due to decreasing risk premiums associated with the ongoing Israel-Hamas conflict.
Despite the enduring nature of this conflict, with Israel not acquiescing to ceasefire demands and reports indicating the Russian mercenary outfit, Wagner Group, contemplating the provision of air defense systems to Hezbollah, the global markets' response has been restrained. Earlier apprehensions about the conflict spilling into the broader Middle Eastern domain have been alleviated, prompting traders to capitalize on their gains from gold investments. Spot gold registered a 0.5% dip, settling at $1,984.24 per ounce. Concurrently, gold futures slated for December expiry experienced a 0.4% decline, marking them at $1,991.15 an ounce as of 23:11 ET (03:11 GMT).
Federal Reserve's Stance and Its Impact on Gold
The market is currently factoring in a significant 95.2% likelihood that the Federal Reserve will abstain from implementing any further rate hikes. Moreover, the central bank's trajectory appears to be headed towards initiating rate cuts, potentially commencing as early as June 2024. However, the Federal Reserve has also conveyed its intention of maintaining its benchmark rate above the 5% threshold at least until the close of 2024. The implication of enduring elevated U.S. rates exerts stress on assets that don't yield returns, a category that includes gold. This dynamic has consistently weighed down on gold prices over the preceding year.
Copper's Fortunes on the Rise Amid Anticipated China Data
Transitioning to the domain of industrial metals, copper prices witnessed a commendable upswing on Monday, buoyed by a revitalized risk appetite among traders. December copper futures reflected this optimism with a 0.7% increase, positioning them at $3.6987 a pound. Market sentiment hinges on the conclusion of the Federal Reserve's rate hike sequence, a development anticipated to alleviate strains on the global industrial landscape.
Moreover, attention is riveted on forthcoming trade and inflation metrics from China, recognized as the world's premier copper importer. This imminent trade data, scheduled for release on Tuesday, is keenly awaited for insights into the country's copper import trends. The latter has witnessed stagnation over the past year, a phenomenon attributed to China's decelerating economic growth rate.
