Gold hits over 3-month high as Powell flags slower rate hikes

By Ambar Warrick 

Investing.com-- Gold prices raced to a three-month high on Thursday after a forecast of smaller interest rate hikes by Federal Reserve Chair Jerome Powell sparked a rally in metal markets, while easing COVID-19 lockdowns in China saw copper prices surge to a two-week peak. 

The Fed chair said in an address at Washington that the central bank will likely moderate its pace of rate hikes in the coming months, as it steps back to observe the effects of sharp interest rate hikes on the economy this year.

But Powell warned that U.S. interest rates will peak at much higher levels than previously expected, largely due to inflation remaining stubbornly high. The personal consumption expenditures price index, the Fed’s preferred inflation gauge, read around 5% in October, well above the Fed’s 2% target. 

But Powell’s comments still sparked a broad-based rally in metal markets, as the prospect of slower rate hikes offered some near-term relief to markets battered by rising interest rates this year. 

Spot gold rose 0.5% to $1,778.20 an ounce, while gold futures expiring in February rallied 1.8% to $1,791.25 an ounce, their highest level since mid-August. Both instruments surged over 1% on Wednesday. 

Gold prices also logged strong gains in November as several Fed officials flagged smaller rate hikes in the coming months.

Still, the outlook for the yellow metal is clouded by uncertainty over where U.S. interest rates will peak, given that the Fed’s terminal rate will be largely determined by the path of U.S. inflation.

Among industrial metals, copper prices surged to an over two-week high on positive signals of a potential reopening in China.

Copper futures were steady around $3.7838 a pound on Thursday, after rallying over 4% in the prior session- their best day in nearly a month.

China scaled back COVID-related restrictions in two major cities this week amid growing public opposition to the country’s strict zero-COVID policy, which saw unprecedented protests rock several parts of the country. 

China’s zero-COVID policy caused widespread economic disruption in the country this year, denting business activities and also weighing on its appetite for commodities.

But a potential reopening in the world’s largest copper importer is largely expected to trigger a recovery in demand, benefiting copper prices.