Gold nears 8-month high on bets of weaker dollar, smaller rate hikes

By Ambar Warrick

Investing.com -- Gold prices hovered near an eight-month high on Wednesday amid a growing number of bets that the Federal Reserve will slow its pace of interest rate hikes and the dollar will retreat further, although caution still persisted ahead of key inflation data due this week.

Bullion prices marked a strong start to the year, having gained nearly 3% since last week as the prospect of smaller U.S. rate hikes offered much relief to non-yielding assets. The yellow metal was also buoyed by increased safe haven demand amid growing concerns over a global recession this year.

But gains in gold prices have somewhat slowed this week, as investors awaited more cues on the U.S. economy from Federal Reserve speakers and key consumer price index inflation data due on Thursday.

Spot gold was flat at $1,877.27 an ounce, while gold futures steadied around $1,881.35 an ounce by 18:57 ET (11:57 GMT). The yellow metal appeared to be largely undeterred by an overnight rise in U.S. Treasury yields.

Focus is now squarely on the U.S. CPI data, which is expected to show that inflation eased further in December from the prior month. The data also comes on the heels of December’s nonfarm payrolls report, which showed that labor market activity is cooling.

Easing inflation and cooling labor market activity drove increased expectations that the Fed will slow its pace of rate hikes this year, after a series of sharp hikes in 2022. This scenario presents a positive outlook for metal markets, which were battered in 2022 as rising rates pushed up the opportunity cost of non-yielding assets.

Among industrial metals, copper prices were flat on Wednesday after a strong run of gains since the beginning of the year. Fears of a global economic slowdown were largely offset by optimism over a reopening in China, the world’s largest copper importer.

Copper futures steadied around $4.0797 a pound, and were trading at their highest level in over six months.

Recent supply disruptions caused by political violence in Peru also stand to benefit copper prices by tightening markets in the near-term. Peru is the world’s second-largest producer of the red metal.