Gold to its lowest level in 5 months, with expectations of raising US interest rates

Gold prices stabilized in Asian trading on Thursday, and began to recover after three days of losses as hawkish signals from the Federal Reserve boosted the dollar, warning of further weakness for the yellow metal.

Spot gold fell below the key level of $1,900 an ounce this week, and traded at its lowest level in five months amid pressure from a rally in the dollar and Treasury yields.

The yellow metal has seen little demand as a safe haven despite growing concerns about the Chinese economic slowdown, with the prospect of higher yields keeping traders on the dollar’s side.

Spot gold settled at $1892.62 an ounce – its weakest level in five months, while gold futures fell 0.3% to $1921.95 an ounce – its lowest level in five weeks by 00:05 ET (04:05 GMT). .

 Fed minutes boost dollar and bond yields

Minutes of the Federal Reserve’s July meeting showed on Wednesday that most members of the rate-setting committee support higher interest rates to curb flat inflation.

While officials were divided on the need for more increases, they still assumed more upside risks to inflation – a scenario that could eventually attract more interest rate increases by the central bank. The US inflation reading for the month of July also rose.

The dollar rose to nearly a two-month high after the meeting minutes were released, while benchmark 10-year Treasury yields reached their highest levels in nearly 10 months. Yields were also close to levels last seen during the 2008 financial crisis.

The prospect of higher US interest rates does not bode well for gold, since it increases the opportunity cost of investing in non-yielding assets. This idea had hit the yellow metal until 2022, and it is expected to continue to affect gold until the Federal Reserve decides to start cutting interest rates.

But analysts expect the Fed to keep rates high for at least the next six months, with Goldman Sachs (NYSE:GS) forecasting a rate cut only by mid-2024.

 Copper near 8-month low on China risks

Copper prices fell on Thursday, hovering near their weakest level since late May as markets continued to worry about worsening economic conditions in China, which could hamper copper demand in the world’s largest copper importer.

Copper futures rose 0.1% to $3.6517 a pound after falling sharply earlier this week.

Weak economic readings from China continued to emerge, while fears of default and contagion in the country’s real estate market dampened sentiment as well.

Fitch Ratings also said it was considering downgrading China’s sovereign rating, especially if the bottleneck in corporate debt spilled over into the government’s balance sheet.

But the ratings agency sees little chance of that happening in the near term and expects the real estate market to undergo deeper structural change.