Gold prices increased on Monday, benefiting from a decline in the U.S. dollar ahead of crucial inflation data scheduled for release later in the week. Meanwhile, copper prices saw a significant rally driven by optimistic Chinese inflation data.
Gold experienced a notable decline last week, primarily due to concerns related to persistent inflation and the anticipation of prolonged higher interest rates in the United States, which pushed the dollar to a nearly six-month high. On Monday, the dollar saw some profit-taking, providing relief to gold prices.
The focus has now shifted to the U.S. consumer inflation data for August, set to be released on Wednesday. Expectations are that the reading will show an increase compared to the previous month, potentially providing further motivation for the Federal Reserve to maintain higher interest rates for an extended period.
The most-active December gold futures on the New York Comex settled at $1,947.20 per ounce, marking a $4.50 increase, or 0.2%, for the day. The spot price of gold, which reflects physical bullion trades and is closely monitored by some traders, stood at $1,922.51 by 16:20 ET (20:20 GMT), showing a $3.16 increase, or 0.2%.
The potential for hotter U.S. inflation data has raised concerns among gold traders, as this could lead to further losses in gold prices, particularly with the upcoming Federal Reserve meeting next week. Analysts anticipate a 0.6% increase in consumer price index inflation for August compared to the previous month, accelerating from the 0.2% gain observed in July.
While the Federal Reserve is widely expected to maintain interest rates in September, any signs of persistent inflation could push the central bank toward additional rate hikes later this year. U.S. interest rates are already at their highest levels in over two decades.
Higher U.S. interest rates tend to weigh on gold, as they increase the opportunity cost of holding the non-yielding precious metal. This dynamic has been a significant factor behind gold’s performance over the past year, limiting its ability to stage a substantial recovery in 2023.
In the realm of industrial metals, copper prices experienced a significant surge on Monday, primarily driven by improved Chinese inflation data released over the weekend. Copper futures jumped by 2.4%, settling at $3.8070 per pound in New York futures trading, rebounding from a more than three-week low.
The weekend’s data revealed that Chinese consumer inflation returned to positive territory in August, while producer price inflation also showed a slower decline compared to earlier in the year. These positive inflation figures, coupled with Beijing’s implementation of additional support measures for the property sector, generated optimism regarding an economic recovery in China, the world’s largest importer of copper.
However, despite these encouraging inflation figures, other economic data for August continued to portray a mixed picture of the Chinese economy, which is grappling with the challenges of a slowing post-COVID recovery.
