Gold prices held at one-month highs on Thursday as weaker-than-expected US inflation data fueled predictions on a less aggressive Federal Reserve, while copper prices were lifted by the potential of additional stimulus measures in major importer China.
On Wednesday, the yellow metal had its greatest intraday increase in more than two months, followed by a drop in the dollar and Treasury yields following data showing U.S. consumer price index (CPI) inflation grew less than predicted in June.
The score indicated that the Fed’s aggressive interest rate hikes over the past year were producing fruit, and that the bank’s hardline stance could be tapered sooner than expected.
The scenario suggests that gold will be under less pressure from high interest rates, which have been weighing severely on the yellow metal over the last year. The potential cost of owning non-yielding assets such as gold rises as loan rates rise.
A drop in the value of the dollar, which fell to near 15-month lows following the CPI reading, helped gold and other commodities priced in the greenback.
On 20:48 ET (00:48 GMT), spot gold was unchanged at $1,957.07 per ounce, while silver futures were unchanged at $1,961.45 per ounce. On Wednesday, both instruments gained approximately 1.3%, their highest intraday rise since early May.
The Fed is still expected to raise rates in July
Despite the lower CPI reading, inflation remained above the Federal Reserve’s 2% annual objective. This is expected to lead to more rate hikes by the Fed in the near term, with markets pricing in at least a 25-basis point increase at the end-of-July meeting.
A wave of Fed officials also hinted at additional rate hikes in the coming months, warning that core inflation remained stubbornly high and threatened to become entrenched. The June core CPI estimate of 4.8% was lower than projected, although it remained relatively strong and significantly above the headline number of 3% growth.
The Fed had earlier this year signaled a peak rate of at least 50 basis points higher than the current 5.25%, yet weaker labor data and the weak CPI figure may cause the bank’s attitude to shift during its July meeting.
Copper is being boosted by the dollar’s weakness and talk of Chinese assistance
Copper prices extended gains among industrial metals on Thursday, reaching a three-week high as sluggish US inflation data fueled predictions that global economic growth will not weaken as much as previously expected this year.
Copper futures increased 0.2% to $3.8595 per pound, following a 2.4% gain the previous day.
The red metal was also bolstered by anticipation that China, the world’s largest copper importer, will implement additional stimulus measures to help a stalling economic recovery.
Several reports in Chinese official media suggested that the administration was close to specifying more budgetary spending.
- Gold prices steadied near one-month highs on Thursday as weaker-than-expected U.S. inflation data spurred bets on a less aggressive Federal Reserve, while copper was buoyed by the prospect of more stimulus measures in major importer China.
- The decline in the dollar and Treasury yields after data showed U.S. consumer price index (CPI) inflation grew less than expected in June, led to the best intraday gain in more than two months for gold on Wednesday.
- Despite the softer CPI reading, inflation still remains above the Fed’s 2% annual target, and the central bank is expected to raise rates by at least 25 basis points in an end-July meeting.
- Copper prices also rose to a three-week high on Thursday, supported by speculation that China, the world’s largest copper importer, will roll out more stimulus measures to support a slowing economic recovery.
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