Gold's new year rally cools at 7-month highs, more Fed cues awaited

By Ambar Warrick

Investing.com -- Gold prices hovered near seven-month highs on Tuesday as markets awaited more cues on U.S. monetary policy from an upcoming speech by Federal Reserve Chair Jerome Powell, as well as key inflation data.

Bullion prices logged strong gains in recent sessions, amid increasing optimism over a potential slowdown in U.S. interest rate hikes. Inflation readings for November, as well as signs of cooling in the jobs market, seemed to suggest that price pressures in the world’s largest economy had peaked, necessitating a less hawkish stance from the Fed.

Markets expect Powell to shed more light on this trend when he speaks at a bank symposium in Sweden later in the day.

Spot gold rose 0.2% to $1,875.19 an ounce, while gold futures rose 0.1% to $1,879.30 an ounce by 20:54 ET (01:54 GMT). Bullion prices rallied over 2% in the first week of 2023.

Focus this week is also on U.S. consumer price index inflation data, which is expected to have slowed further in December from the prior month. But markets will be closely watching for the pace of slowing, given that inflation is still trending well above the Fed’s annual target range.

Increased safe haven demand also boosted gold prices in recent sessions, as markets grew wary of a potential recession this year amid high inflation and rising interest rates.

Dismal business activity data prints from several major economies, coupled with signs of a cooling U.S. labor market ramped up fears that global economic growth will slow in 2023.

This, coupled with expectations for less severe rate hikes by the Fed, ramped up safe haven demand for gold.

The Fed is widely expected to hike interest rates by 25 basis points when it meets in February. But the central bank has also warned that it could keep interest rates higher for longer.

The path of U.S. monetary policy is likely to define the performance of gold and other metal markets this year.

Among industrial metals, copper prices were muted on Tuesday, but hovered just below their highest level since mid-June.

Copper futures fell 0.1% to $4.0085 a pound. Prices of the red metal rallied sharply in recent weeks as markets bet on an economic recovery in China, the world’s largest copper importer.

The country recently scaled back nearly all of its anti-COVID restrictions, which is expected to eventually drive an economic bounceback.

But in the near-term, China also has to contend with surging infections.