Gold, Copper Prices Slip as China Jitters Boost Dollar

By Ambar Warrick

Investing.com-- Gold and copper prices fell on Monday, reversing some steep gains from the prior session as China’s recommitment to its zero-COVID policy ramped up concerns over slowing economic growth and boosted the dollar.

Spot gold fell 0.4% to $1,674.12 an ounce, while gold futures fell 0.5% to $1,677.30 an ounce in early Asian trade. Prices of the yellow metal rallied sharply on Friday after U.S. nonfarm payrolls data read stronger than expected for October, while the dollar fell.

But the greenback arrested its recent declines on Monday, with the dollar index rising 0.2%. Chinese health officials said over the weekend that the country remains “unswervingly” committed to its strict zero-COVID policy, dashing hopes of a pivot that fueled a bumper stock market rally last week.

The move heralds more supply chain and economic disruptions stemming from the country, the prospect of which boosted the dollar. The greenback has largely overtaken gold as a safe haven, as rising interest rates raised the opportunity cost of holding the yellow metal.

Gold is also expected to remain under pressure in the coming months, given that the Federal Reserve signaled it will keep hiking interest rates to curb inflation. Last week’s strong jobs reading gives the central bank more headroom to raise interest rates.

Focus this week is on U.S. inflation data for October, which is expected to show that price pressures remained pinned near 40-year highs. Such a reading is likely to invite more hawkish moves from the Fed.

Copper prices fell sharply on Monday on the prospect of weakening demand in China, which is the world’s largest importer of the industrial metal. Copper futures fell 2% to $3.6235 an ounce, also reversing a sharp rally seen on Friday.

China’s zero-COVID policy ground economic activity in the country to a halt this year, weighing on its appetite for commodity imports. With the country now reiterating its commitment to the policy, commodity markets are likely to see a continuation of this weakening trend.

Still, copper prices are expected to somewhat benefit from tightening supply in the coming months, especially as production slows in Chile, the world’s largest copper producer.

U.S. sanctions on Russian exporters and increased demand in the electric vehicle industry is also expected to tighten supply.