Gold Hit by Rising Yields, Copper Trims Losses on Supply Concerns

By Ambar Warrick

Investing.com-- Gold prices fell on Friday and were set to end the week lower as a spike in U.S. Treasury yields rattled markets, while copper prices trimmed some of their losses for the week after major commodity trader Trafigura warned of a severe shortage of the red metal.

10-Year U.S. Treasury yields jumped 2.2% overnight and were at their highest level since the 2008 financial crisis as expectations grew that the Fed will hike rates sharply in November. This also kept the dollar underpinned, although the greenback was set for a mild weekly loss.

Spot gold fell 0.1% to $1,626.52 an ounce, while gold futures retreated 0.4% to $1,630.90 an ounce by 20:29 ET (00:29 GMT). Both instruments are down about 1% this week, their second consecutive week of losses.

Bullion prices fell sharply this year, recently hitting a two-year low as rising interest rates across most of the globe drove up the opportunity cost of holding gold. The outlook for the yellow metal is also dimmed by expectations that central banks will continue to raise interest rates in their fight against inflation.

Markets are pricing in a nearly 100% chance that the Fed will hike rates by 75 basis points when it meets in November. Members of the central bank also recently warned that interest rates could rise far more than expected if inflation does not cool in time.

Among industrial metals, copper prices fell in volatile trade as markets weighed weakening economic trends against the prospect of a supply shortfall.

Copper futures fell 0.3% to $3.3890 a pound, and were set to lose about 1% this week. But prices of the red metal rallied sharply on Thursday after Trafigura, one of the world's largest commodity traders, warned that supplies of the red metal were far below global demand.

Kostas Bintas, co-head of metals and minerals trading at Trafigura, told the Financial Times that demand for the red metal, which is used in a variety of crucial applications, has remained strong despite economic headwinds in China and Europe. Demand for copper in electrical vehicles and their infrastructure has more than made up for a shortfall in China due to a slowing real estate sector.

Copper supplies were also dented this year by a strike in Escondida, the world's largest copper mine, as well as U.S. sanctions against major Russian suppliers. But copper prices have fallen sharply this year on fears that a global recession will crimp demand.