Gold Prices Retreat as Fed Speech Looms
Gold prices pull back as Fed jitters offset safe haven demand
Gold prices retreated from over two-month highs on Thursday as caution before a speech by Federal Reserve Chair Jerome Powell somewhat offset safe haven demand fueled by the Israel-Hamas war.
Escalation in Israel-Hamas conflict boosts safe haven demand
The yellow metal appreciated sharply this week as an escalation in the Israel-Hamas conflict spurred concerns over a spillover into the broader Middle East region, which in turn fueled demand for conventional safe havens.
Recovery in dollar and rising interest rates impact gold trade
But this trade was cut short by a recovery in the dollar, while bond yields shot back up to multi-year highs as markets positioned for higher interest rates.
Gold prices remain near two-month peak amid geopolitical tensions
Still, gold prices remained within sight of an over two-month peak hit earlier this week, as markets awaited fresh developments in the Israel-Hamas conflict. The cancellation of a summit between U.S., Egyptian, and Palestinian leaders had also spurred more safe haven demand for the yellow metal.
Gold and silver prices experience slight decline
Gold fell 0.1% to $1,946.51 an ounce, while losses in silver were more pronounced, with futures down 0.5% at $1,958.35 an ounce by 00:31 ET (04:31 GMT).
Rate risks in play as Powell speech looms
But whether gold could push higher remained in doubt, especially before a speech where the Fed chair is widely expected to reiterate his stance on higher-for-longer interest rates.
Treasury yields surge, reflecting market expectations
A surge in Treasury yields this week indicated that markets are also pricing in higher interest rates, especially as recent data pointed to an unexpected upswing in U.S. inflation. Overnight comments from other Fed officials also reiterated the bank’s hawkish outlook.
Dollar strengthens, impacting commodity markets
The dollar benefited from this speculation, rising 0.3% overnight and cutting short a rally in most commodity markets, including gold.
Higher interest rates and dollar strength affect gold prices
Higher interest rates bode poorly for non-yielding assets such as gold, given that they increase the opportunity cost of investing in such assets compared to relatively safe Treasuries. The dollar also benefits from such a scenario, which directly weighs on the price of gold.
Copper slips as China property woes offset GDP cheer
Among industrial metals, copper prices fell on Thursday, coming under pressure from renewed fears of a property market meltdown in China.
Concerns over default in China’s property market
Beleaguered developer Country Garden appeared to have missed a key repayment on its offshore bonds, likely pointing to a default for most of the firm’s foreign debt. This is expected to spark a string of defaults for the firm, as it struggles to restructure its oversized debt obligations.
China’s property market and copper demand
Any headwinds to China’s property market bode poorly for copper demand, given that the country is the world’s biggest copper importer. The property market also accounts for a large portion of China’s copper appetite.
