Gold Prices Climb as Markets Anticipate Steady Fed Rates and U.S. Government Shutdown Fears
On Monday, gold prices experienced an uptick, driven by market expectations that the Federal Reserve will maintain current interest rates during its upcoming meeting. Simultaneously, growing concerns regarding a potential U.S. government shutdown have amplified safe-haven demand for the precious metal.
In recent sessions, gold demonstrated resilience, despite robust inflation and economic activity data, which failed to convince market participants of an imminent U.S. interest rate hike. However, the dollar’s surge to six-month highs in response to the data has placed some limitations on gold’s gains.
The allure of bullion prices is expected to persist, primarily due to concerns surrounding a U.S. government shutdown. The ongoing dispute among top Republican lawmakers over defense spending and broader fiscal cuts has heightened apprehensions. There remains a mere two-week window for lawmakers to pass a new spending bill and prevent a shutdown.
Historically, gold has exhibited limited gains during previous government shutdowns. For instance, during the longest government shutdown in history in 2018-2019, gold prices only increased by $20 over a span of 35 days.
On the New York Mercantile Exchange’s Comex, U.S. gold futures expiring in December settled up 0.4% at $1,953.40 per ounce. Meanwhile, spot gold, which is closely monitored by some traders due to its real-time global trade representation, rose 0.4% to $1,931.51 per ounce by 15:00 ET (19:00 GMT). Both these instruments recorded a 0.3% gain in the previous week.
Federal Reserve Set to Maintain Rates, but Inflation Raises Hawkish Concerns
The Federal Reserve is widely expected to keep interest rates unchanged following its two-day meeting concluding on Wednesday. However, market participants remain cautious regarding the central bank’s outlook. Recent spikes in inflation and the U.S. economy’s resilience provide room for further interest rate hikes.
Despite potential future hikes, the Fed is likely to maintain rates at levels not seen in over 20 years, at least until mid-2024. This trend has exerted considerable downward pressure on gold prices over the past year and is expected to limit substantial upward movements in the metal.
Higher interest rates elevate the opportunity cost of investing in non-yielding assets, which presents a subdued outlook for precious metal markets.
Apart from the Fed, central banks in China, the UK, and Japan are set to make decisions this week, with the Bank of England being the sole institution expected to raise interest rates.
Copper Remains Steady Amid Concerns About China’s Property Market
Copper prices remained relatively stable on Monday, as renewed concerns centered on China, particularly its property market.
U.S. copper futures for December delivery settled down 0.6% at $3.7790 per pound, following a gain of over 2% in the previous week.
Although recent economic indicators have hinted at a recovery in China, the world’s largest copper importer, the country’s property market faces new challenges this week. This includes more bond payments due for the beleaguered developer Country Garden Holdings (HK:2007). Additionally, the detention of employees from China Evergrande Group’s (HK:3333) wealth management unit has sparked concerns about heightened government scrutiny within the property sector.
The People’s Bank of China is widely expected to maintain its loan prime rates at historic lows this Wednesday as it seeks to bolster economic growth. However, despite these stimulative measures, the outlook for China’s property market, a key driver of copper demand, remains predominantly pessimistic.