Gold creeps lower as U.S. Fed, CPI week kicks off

By Ambar Warrick

Investing.com-- Gold prices fell slightly below key levels on Monday, with caution kicking in ahead of key U.S. inflation data and a Federal Reserve meeting this week, while uncertainty over rising COVID-19 cases in China weighed on copper prices.

Bullion prices had reacted somewhat positively to last week’s data that showed U.S. producer price inflation eased further in November, albeit at a slower-than-expected pace. The reading could herald a similar trend in the consumer price index, which is due on Tuesday.

Rising U.S. inflation spurred a series of sharp interest rate hikes by the Fed this year, which weighed heavily on metal markets by driving up the opportunity cost of holding non-yielding assets.

The central bank is also set to conclude a two-day meeting on Wednesday, where it is expected to raise rates by a relatively smaller 50 basis points. But the scale of future rate hikes will be largely driven by the path of U.S. inflation.

Spot gold fell 0.2% to $1,793.72 an ounce, while gold futures dropped 0.3% to $1,804.95 an ounce by 19:30 ET (00:30 GMT). The yellow metal had ended last week largely flat, as traders hunkered down ahead of major data releases this week.

Other precious metals also retreated on Monday, with platinum futures down 1.7%, while silver futures fell 0.9%.

Markets are wary of any signs that U.S. inflation remained stickier than expected in November, which could point to more rate increases by the Fed. The central bank has warned that U.S. interest rates could peak at higher-than-expected levels if inflation proves to be stubborn.

The dollar strengthened slightly on Monday in anticipation of the U.S. economic indicators, having also taken some support from the higher-than-expected PPI inflation data.

Among industrial metals, copper prices fell on Monday after two straight weeks of gains, amid growing uncertainty over COVID in China.

Copper futures fell 0.4% to $3.8412 a pound.

China scaled back several nationwide anti-COVID restrictions last week, a move that is expected to eventually spark a recovery in the world’s second-largest economy.

But analysts warned that the relaxing of COVID restrictions is likely to cause a near-term jump in infections, which could delay the further withdrawal of curbs.

This has cast doubts over the timeline of an economic recovery in the world’s largest copper importer.

Weakening economic data from several major economies has also dampened the outlook for copper, which usually tends to benefit from a high-growth environment.