Introduction:
Gold prices have been hovering near yearly lows due to ongoing concerns regarding rising US interest rates. The market has been under pressure as investors turn to other assets amidst hawkish signals from the Fed. This article will explore the current state of the gold market and its relationship with rising interest rates.
The State of the Gold Market:
On Thursday, spot gold rose 0.1% to $1,815.64 an ounce, while gold futures were flat at $1,819.35 an ounce. However, both instruments were nursing an around 2% loss so far this week, as the prospect of higher rates pushed up the opportunity cost of holding non-yielding assets. The dollar surged to three-month highs this week, while Treasury yields also rose sharply as investors began pricing in more aggressive hikes by the Fed in the near-term.
Hawkish Signals from the Fed:
Gold prices were impacted by hawkish signals from Fed Chair Jerome Powell this week. Powell warned that recent signs of resilience in inflation and the jobs market were likely to push interest rates higher than market expectations. Focus now turns to nonfarm payrolls data due on Friday, with any more signs of labor market strength giving the Fed more impetus to hike rates.
The Relationship between Rising Interest Rates and the Gold Market:
The gold market has traditionally been seen as a safe-haven asset, particularly during times of economic uncertainty. However, rising interest rates can make other assets more attractive to investors, as the opportunity cost of holding non-yielding assets like gold increases. This relationship between rising interest rates and the gold market is a key factor to consider when analyzing the current state of the market.
Other Precious Metals:
Other precious metals traded in a tight range on Thursday, but were still nursing sharp losses for the week. Silver futures fell 0.1% to $20.122 an ounce, while platinum futures rose 0.2% to $941.25 an ounce.
The State of Industrial Metals:
Copper prices rebounded sharply in overnight trade as the Fed’s Beige Book report helped brew some optimism over the US economy, which has been suffering from a manufacturing downturn in recent months. Copper futures rose slightly to $4.0320 a pound on Thursday, after rebounding 1.6% during the US session. But the red metal was still down 0.8% this week, as markets feared that rising US interest rates could spur a potential recession this year.
Supply and Demand for Copper:
Tight supply conditions in the copper market may also be showing signs of easing, as production from major mines in Peru appeared to be normalizing after months of indigenous protests. Copper shipments from Panama are also set to resume after the government reached a contract with Canadian miner First Quantum Minerals (TSX:FM) over the operation of a major mine. Despite this, mixed trade data from China showed that Chinese commodity demand remained weak despite the lifting of anti-COVID restrictions earlier this year.
Conclusion:
The gold market is experiencing pressure as rising US interest rates and hawkish signals from the Fed push investors to other assets. This relationship between rising interest rates and the gold market is a key factor to consider when analyzing the current state of the market. While other precious metals and industrial metals are also being impacted by this relationship, the supply and demand for copper is showing some signs of easing. Investors will continue to watch economic data closely to determine the impact on the market.
