Gold sinks below $1,750 on hawkish Fed comments, copper steady

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By Ambar Warrick 

AiVIF.com-- Gold prices fell below a key support level on Tuesday after hawkish comments from Federal Reserve officials brewed some uncertainty over the path of U.S. monetary policy, while copper prices steadied as markets awaited more developments in China.

St. Louis Fed President James Bullard said on Monday that the Fed has “a ways to go” on interest rate hikes, and could keep hiking them and hold them until 2024 to combat inflation. He also reiterated his view that rates need to rise by at least another 1% to between 5% and 5.25%. 

Separately, New York Federal Reserve President John Williams said the central bank will likely begin trimming rates in 2024, as inflation pressures eventually ease. He also said that borrowing costs need to rise further to bring down inflation.

Their comments boosted the dollar, with the greenback jumping nearly 0.7% on Monday. This weighed on most metal markets, particularly gold.

Spot gold was flat around $1,741.33 an ounce, while gold futures expiring in December traded around $1,740.00 an ounce, remaining in backwardation. Both instruments sank around 0.6% on Monday.

While Bullard and Williams’ comments provided some more clarity on U.S. monetary policy, they also dimmed optimism over a slower pace of rate hikes by the Fed in the coming months, given that rates will likely peak at much higher levels.

This paints a dour picture for non-yielding assets such as gold, which fell sharply this year as U.S. rates began rising.

Gold saw little safe haven demand this week, even as unprecedented civil unrest in China raised concerns over global economic disruptions. 

Copper, on the other hand, marked a volatile start to the week, sinking as much as 2% before recovering sharply to trade higher. 

The outlook for the red metal was dulled by the protests in China, which could further hamper the country’s appetite for commodities. Chinese citizens in several major cities took to the streets over the weekend to express their discontent with the country’s draconian zero-COVID policy.

Copper futures were steady around $3.6018 a pound in early trade on Tuesday. 

But some analysts opined that the protests in China may eventually push the government into relaxing its zero-COVID policy, which is at the heart of China’s economic slowdown this year. Such a scenario is likely to be positive for commodity markets.

On the supply side, reports suggested that workers at Chile’s massive Escondida copper mine will not go on strike, reducing the prospect of tight supply in the coming months.