Gold prices creep lower as dollar yields surge on hawkish Fedspeak

Gold prices fell in Asian trade on Tuesday, facing consistent pressure from a stronger dollar and higher Treasury yields as Federal Reserve officials reiterated the bank’s outlook for higher interest rates. 

Minneapolis Fed President Neel Kashkari said in an address on Monday that he saw rates rising at least once more in 2023 and that they were likely to remain higher through 2024.

His comments echoed those made by Fed Chair Jerome Powell last week, who said that sticky inflation and a tight labor market will likely elicit one more rate hike this year. Powell also downplayed expectations for a large band of rate cuts next year, with the Fed’s target rate set to remain above 5% through 2024. 

The outlook for higher rates dented gold’s prospects, given that higher yields push up the opportunity cost of investing in the non-yielding asset. This weighed particularly on the outlook for prices, with gold futures losing more than the spot price in recent sessions.

Spot gold fell 0.1% to $1,913.62 an ounce, while gold futures expiring in December fell 0.2% to $1,932.25 an ounce by 00:02 ET (04:02 GMT). Both instruments were at an 11-day low. 

Dollar at 10-month peak, yields hit 16-year high with shutdown in focus 

Pressure on metal markets came chiefly from a stronger greenback, as the Fed’s hawkish rhetoric pushed the dollar to its highest level in 10 months against a basket of currencies.

Treasury yields also surged in the wake of the Fed’s meeting last week, with the benchmark 10-year rate at its highest since 2007.

Growing fears of a U.S. government shutdown did little to deter the dollar’s advance, with higher rates also increasing the greenback’s safe-haven appeal over gold.

Congress has less than a week to pass a spending bill and avert a shutdown. But both Republican and Democratic leaders indicated little progress was being made towards reaching a consensus. 

While gold is a safe haven, it has seen little actual gain during past government shutdowns. The 2018–2019 shutdown, which was the longest in U.S. history at 35 days, only saw a $20 appreciation in spot prices.

Copper prices dip, and China jitters persist 

Among industrial metals, copper prices extended losses on Tuesday amid persistent concerns over an economic slowdown in China, the world’s largest copper importer.

Sentiment towards the country was dealt a fresh blow this week as beleaguered property developer China Evergrande Group (HK:3333) said it would be unable to issue new debt due to a government investigation. This ramped up concerns over more regulatory scrutiny of the sector, which is already struggling with a three-year-long cash crunch.

The property sector is also a key driver of copper demand. Copper futures fell 0.1% to $3.702 a pound and were close to 1-½ month lows.

The focus this week is now on purchasing managers’ index data from China for more cues on business activity.

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