Gold, copper set for best month in 2022 on dovish Fed, China hopes

By Ambar Warrick

Investing.com-- Gold and copper prices were muted on Wednesday in anticipation of a speech by Federal Reserve Chair Jerome Powell, but were headed for their best monthly gain this year following signals that U.S. interest rate hikes are likely to slow in the coming months.

Powell is expected to provide more cues on the U.S. economy and the path of monetary policy for the remainder of the year when he speaks at an event in Washington later in the day. Markets are also awaiting key U.S. payrolls data later in the week.

While the minutes of the Fed’s November meeting showed that a growing number of Fed members support smaller rate hikes in the coming months, Fed speakers have warned that stubborn inflation will likely keep U.S. rates elevated until well into 2024.

This did little to curb a month-long rally in metal markets, as the prospect of a smaller rate hike in December offered much relief to non-yielding assets such as gold.

Spot gold prices steadied around $1,748.99 an ounce, while gold futures fell 0.1% to $1,747.30 an ounce. Both instruments jumped nearly 1% on Tuesday, and were set to rise around 7% for November - their strongest monthly gain since May 2021.

But the outlook for gold still remains muted, given that U.S. inflation is trending well above the Fed’s annual target. Stubborn inflation could see the central bank tighten monetary policy further to bring down prices - a scenario that is negative for gold.

The yellow metal fell sharply this year as rising interest rates pushed up the opportunity cost of holding non-yielding assets.

Among industrial metals, copper prices fell slightly on Wednesday, but were also set for their best month in 2022.

Copper futures fell 0.1% to $3.6405 a pound, after rising 0.7% in the prior session. But they were set to rise nearly 8% in November - their best month since early-2021.

Copper prices were largely boosted by speculation over the scaling back of COVID-related restrictions in major importer China.

The world’s largest copper importer is facing increased public ire over its handling of the COVID-19 pandemic, which has driven speculation that the government will be forced to suspend restrictive measures.

But Beijing has given no such indication so far, as the country grapples with a record-high daily increase in COVID-19 infections. This saw the reintroduction of strict movement curbs in several major cities over the past two months, which weighed heavily on China's economy.