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Gold pinned near 3-month high, copper slumps on China COVID woes

Published 15/11/2022, 01:20
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By Ambar Warrick

Investing.com-- Gold prices hovered near three-month highs on Tuesday as mixed signals from Federal Reserve officials on the path of U.S. interest rates kept the dollar pinned to recent lows, while copper prices sank as rising COVID-19 cases in major importer China pointed to more potential demand disruption.

Fed officials Lael Brainard and Christopher Waller said this week that the U.S. central bank is likely to hike rates at a slower pace in the coming months. But they also suggested that the bank’s hiking cycle was far from over, and that stubbornly high inflation warranted much more tightening.

While slower raises in interest rates will likely provide some near-term relief to gold and other metal prices, a steady rise in U.S. rates is likely to dent appeal for the yellow metal in the long run.

Spot gold fell 0.1% to $1,768.72 an ounce, while gold futures fell 0.3% to $1,771.90 an ounce by 19:26 ET (00:26 GMT). But bullion prices rallied over 5% last week, while the dollar retreated after U.S. inflation read lower than expected for October.

Markets are now pricing in an over 80% chance that the Fed will hike rates by a relatively smaller 50 basis points in December. But the hike will still put interest rates at their highest since the 2008 financial crisis.

Rising U.S. interest rates weighed heavily on metal markets this year, as higher yields on Treasuries ramped up the opportunity cost of holding non-yielding assets.

But while gold is still off substantially from its annual highs, the metal is now close to breaking even for the year. Recent gains saw the yellow metal sharply pare its year-to-date losses to about 3%.

Among industrial metals, copper prices took little support from a weaker dollar, trading lower after tumbling nearly 3% on Monday.

Copper futures fell 0.3% to $3.8290 a pound. Rising COVID-19 cases in China dashed hopes for a further easing in the country’s zero-COVID policy.

While the world’s largest copper importer had last week loosened some movement and quarantine restrictions under its strict zero-COVID policy, a spike in local infections likely means that officials will be reluctant toward completely easing restrictions.

This is expected to weigh on commodity demand in the country, given that several industrial hubs - including Shanghai and Wuhan - are now facing renewed lockdown measures.

A series of COVID lockdowns in China ground economic activity to a halt this year, severely crimping the country’s appetite for commodity imports.

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