Gold Struggles Pre-Fed; Copper Set for Strong Week

Gold prices remained within a narrow range on Friday, marking a second consecutive week of losses as traders awaited further signals on U.S. interest rates. Attention is now focused on upcoming inflation data and the Federal Reserve meeting.

Copper prices were poised for a robust weekly performance following China’s introduction of additional stimulus measures, boosting optimism for sustained demand for the red metal.

China’s stimulus initiatives contributed to an improvement in risk appetite, which, combined with record highs on Wall Street, diminished demand for gold.

The dollar‚s strength, propelled by better-than-anticipated gross domestic product data, exerted pressure on bullion prices, constraining them within a $2,000 to $2,050 trading range set over the past week.

Spot gold stabilized at $2,021.41 per ounce, while gold futures expiring in February edged up 0.2% to $2,021.10 per ounce by 23:46 ET (04:46 GMT). Both instruments had experienced a decline of about 0.3% for the week.

However, significant declines in the price of gold were tempered by increased safe-haven demand, as tensions escalated in the Israel-Hamas conflict and amid growing unrest in the Middle East.

PCE inflation and the upcoming Fed meeting are currently in focus

Markets are eagerly anticipating new signals regarding U.S. monetary policy, beginning with the release of the PCE price index data, the Fed’s preferred inflation measure, scheduled for later on Friday. Expectations suggest the reading will reaffirm that inflation remained persistent in December.

Persistent inflation, along with growing indications of strength in the U.S. economy, provides the Fed with greater flexibility to maintain higher interest rates for an extended period. This expectation is anticipated to restrict significant upward movements in gold prices in the months ahead.

The Fed is scheduled to convene next week, and it’s widely anticipated to maintain interest rates at their current levels. Additionally, markets are now pricing in the likelihood of the central bank maintaining rates during its March meeting, a shift from earlier expectations of a 25 basis-point cut.

Indeed, a prolonged expectation of higher U.S. interest rates does not bode well for gold prices, as elevated rates increase the opportunity cost of holding onto the precious metal.

Copper prices dip, still set for strong week on China optimism

Copper futures expiring in March dipped 0.2% to $3.8617 per pound but were positioned to gain over 2% for the week after reaching three-week highs.

Copper’s gains were primarily driven by increased monetary stimulus in China, its top importer. This injection helped alleviate concerns surrounding a potential slowdown in demand.

Despite the monetary stimulus, analysts remain skeptical about its effectiveness in addressing China’s significant challenges, including a sharp slowdown in consumer and business spending. Moreover, the anticipated post-COVID economic rebound in 2023 did not materialize, contributing to persistently negative sentiment toward China.

Next week’s PMI data from the country will provide further insights into the economy.

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