Gold, copper buoyant as dollar falls sharply on Fed pause bets

Investing.com -- Gold and broader metal markets steadied on Friday and were set for a second week of gains, as the dollar retreated amid bets that the Federal Reserve will pause its rate hike cycle next week.

The yellow metal marked its best intraday gain in two weeks on Thursday, coming to the upper end of a trading range seen since mid-May as a jump in weekly U.S. jobless claims ramped up bets on a Fed pause.

The dollar marked its sharpest drop since late-March following the data, while Treasury yields also eased, which in turn benefited metal markets priced in the greenback.

Spot gold was flat at $1,965.04 an ounce, while gold futures rose 0.1% to $1,979.75 an ounce by 20:09 ET (00:09 GMT). Both instruments were up about 0.8% for the week.

Weakness in the labor market, coupled with some easing in inflation could see the Fed pause its rate hike cycle when it meets next week. But recent personal consumption and nonfarm payrolls indicators beat expectations, keeping uncertainty high over how the central bank will act.

Fed Fund futures prices show that markets are pricing in a nearly 76% chance the Fed will pause in June, with a 24% chance for a 25 basis hike.

Consumer inflation data is also on tap next week, offering more cues on future interest rate decisions by the Fed.

Gold’s medium, long-term outlook still uncertain

While the yellow metal is expected to see some support if the Fed pauses next week, its gains are expected to be limited with U.S. interest rates likely staying higher for longer this year.

Uncertainty over the Fed and the economy has also kept gold within a tight trading range since mid-May, after the yellow metal tumbled below the closely watched $2,000 an ounce level.

Still, worsening economic conditions this year could see increased safe haven demand for gold, especially as a pause in the Fed’s rate hike cycle saps support for the dollar.

Citi and Commerzbank analysts said on Thursday that a Fed pause is also expected to provide some bullish trends to gold.

Copper heads for second week of gains

Copper prices steadied on Friday, and were set for a second week of gains as they rebounded from six-month lows hit in May.

Copper futures were flat at $3.7875 a pound, and were set to add 1.6% this week.

But despite the two-week recovery, the outlook for the red metal remains dour, especially in the face of worsening economic conditions across the globe.

Signs of a slowing economic recovery in China have also greatly stymied sentiment toward copper.