Gold nears 7-month high as Fed minutes indicate slower rate hikes

By Ambar Warrick

Investing.com-- Gold prices rose to a near seven-month high on Thursday after the minutes of the Federal Reserve’s December meeting showed that policymakers unanimously supported raising interest rates at a slower pace, offering some relief to metal markets battered by rising borrowing costs.

The prospect of smaller interest rate hikes by the Fed weighed on the dollar, fueling more bets that the greenback had peaked after a stellar run in 2022, and is likely to weaken further in the coming months. U.S. Treasury yields fell sharply after the minutes to a three-week low.

Still, the Fed minutes also showed that policymakers were hyper-focused on bringing down inflation, and are set to keep U.S. interest rates higher for longer. Such a scenario is likely to limit gains in metal markets.

Spot gold rose slightly to $1,855.45 an ounce, while gold futures steadied around $1,860.80 an ounce by 19:26 ET (00:26 GMT), reaching their highest level since mid-June. Both instruments logged a strong start to 2023, and are up nearly 2% over the past two sessions.

Bullion prices were also boosted by increased safe haven demand for assets apart from the dollar, especially after a warning from the International Monetary Fund that the world’s largest economies face a potential recession in 2023.

But broader metal markets slipped on the prospect of a global economic slowdown. Among industrial metals, copper prices crept lower and were headed for a third straight day of losses, following a dismal start to the new year.

Copper futures fell 0.1% in early Asian trade to $3.7412 a pound, and are trading down nearly 2% since their last close in 2022.

Uncertainty over an economic reopening in China weighed heavily on the red metal, as the world’s largest copper importer faces an overwhelming spike in COVID-19 infections.

While copper demand is expected to recover eventually as the Chinese economy reopens, prices are set for more near-term volatility as the timeline for said reopening remains unclear.

Signs of slowing business activity in other major economies also weighed on industrial metals. U.S. manufacturing activity shrank for a second straight month in December, data showed on Wednesday, furthering fears of an economic slowdown in the country.

Nickel prices plummeted 6% after the U.S. reading, while the prices of precious metals with industrial applications, such as platinum and silver, also declined.