Gold prices hit 5-mth low as U.S. rate risks boost dollar, yields

Investing.com -- Gold prices steadied in Asian trade on Thursday, and were nursing three days of losses as hawkish signals from the Federal Reserve boosted the dollar and heralded more pain for the yellow metal.

Spot gold slid below the key $1,900 an ounce level this week, and was trading at its lowest level in five months amid pressure from a spike in the dollar and Treasury yields. 

The yellow metal saw little safe haven demand despite increasing concerns over a Chinese economic slowdown, with the prospect of higher yields keeping traders positioned largely in the dollar. 

Spot gold steadied at $1,892.62 an ounce - its weakest level in five months, while gold futures fell 0.3% to $1,921.95 an ounce - a five-week low, by 00:05 ET (04:05 GMT). 

Fed minutes boost dollar, yields 

The minutes of the Fed’s July meeting showed on Wednesday that most members of the rate-setting committee supported higher interest rates to curb sticky inflation. 

While officials were divided over the need for more hikes, they still posited more upside risks to inflation - a scenario that could eventually attract more rate increases by the central bank. U.S. inflation also read higher for July. 

The dollar shot up to a near two-month high after the minutes, while benchmark 10-year Treasury yields reached their highest levels in nearly 10 months. Yields were also close to reaching levels last seen during the 2008 financial crisis.

The prospect of higher U.S. interest rates bodes poorly for gold, given that it increases the opportunity cost of investing in non-yielding assets. This notion had battered the yellow metal through 2022, and is expected to keep weighing on gold until the Fed decides to begin trimming rates.

But analysts expect the Fed to keep rates high for at least the next six months, with Goldman Sachs forecasting a rate cut only by mid-2024.

Copper near 8-mth low on China risks 

Copper prices were muted on Thursday, and were hovering near their weakest levels since late-May as markets continued to fret over worsening economic conditions in China, which could stymie copper demand in the world’s largest copper importer. 

Copper futures rose 0.1% to $3.6517 a pound, after falling sharply earlier this week.

Weak economic readings from China continued to trickle in, while fears of defaults and contagion in the country’s property market also dented sentiment.

Fitch Ratings also said that it would consider downgrading China’s sovereign rating, especially if ructions in corporate debt spilled over into the government’s balance sheet. 

But the ratings agency sees little chance of this happening in the near-term, and expects the property market to undergo a deeper, structural change.