Gold prices sink as hawkish comments by Federal Reserve officials fueled concerns over interest rate hikes, following a stronger-than-expected U.S. inflation data. While on the other hand, copper prices outpace metal markets this week as optimism over China, the world’s largest copper importer, renewed with more stimulus measures announced to shore up economic growth.
Gold Prices Fall Amid U.S. Inflation Data and Hawkish Comments
The U.S. producer price index inflation grew more than expected in January, data showed on Thursday, on the heels of an overheated consumer price index report. This indicated that inflation in the world’s largest economy remained sticky. St. Louis Fed President James Bullard raised the prospect of a 50 basis point hike in March and said that the central bank could return to raising interest rates at a sharper pace. Cleveland Fed President Loretta Mester also mentioned that interest rates would likely rise above 5% as the Fed moves against inflation. The prospect of rising U.S. interest rates bodes poorly for non-yielding assets like gold, as it drives up their opportunity cost.
As a result, the dollar and Treasury yields shot up, and investors piled into the greenback on the prospect of better and safer returns, pulling a bulk of flows away from gold markets. Spot gold sank 0.2% to $1,833.67 an ounce, while gold futures fell 0.5% to $1,842.75 an ounce. The yellow metal’s prices were set to lose between 1% and 1.7% this week, their third straight week in the red.
Prospect of Rising U.S. Interest Rates Bodes Poorly for Gold Prices
The prospect of rising U.S. interest rates bodes poorly for non-yielding assets like gold, as it drives up their opportunity cost. Rising rates also see investors favor the dollar as a safe haven asset, given that it offers better returns. Other precious metals also sank on Friday. Platinum futures fell 0.6% to $920.30 an ounce- an over three-month low, while silver futures slumped 1.2% to $21.448 an ounce, a 2-½ month low.
Copper Prices Outpace Metal Markets This Week
Among industrial metals, copper prices retreated on Friday but were still set to end the week positive on optimism over China and potential supply disruptions. High-grade copper futures fell 0.2% to $4.1137 a pound and were set to rise 2.4% this week – their best weekly performance since early-January. Copper was also set to break three straight weeks of declines as China flagged more stimulus measures to shore up economic growth. The move renewed optimism over a Chinese economic recovery after the country relaxed most anti-COVID measures earlier this year.
Supply Disruptions Could Push Up Copper Prices
A deepening dispute between the Panama government and foreign copper miners threatened to suspend the country’s copper exports, which could limit supply and push up prices. This has contributed to the positive sentiment around copper prices as investors anticipate potential supply disruptions.
Conclusion
The prospect of rising U.S. interest rates bodes poorly for non-yielding assets like gold, and hawkish comments by Federal Reserve officials added to concerns over more interest rate hikes. Gold prices sank, and other precious metals also declined. Meanwhile, copper prices outpaced metal markets this week due to optimism over China and the potential for supply disruptions.
