Gold prices near 1-mth high as markets rethink U.S. rate hikes

Investing.com -- Gold prices rose slightly on Friday, sticking to near one-month highs as softer-than-expected U.S. inflation data saw investors reassess just how much further U.S. interest rates will rise.

The yellow metal was set for its best weekly gain since late-April, having rebounded sharply from the $1,900 an ounce support after both producer and consumer inflation data read weaker-than-expected for June.

The readings saw investors trim their expectations for more rate hikes by the Federal Reserve this year, in turn presenting a brighter outlook for gold and other non-yielding assets.

A drop in the dollar to 15-month lows also benefited gold and other commodities priced in the greenback.

Spot gold moved little at $1,961.24 an ounce, while gold futures rose 0.1% to $1,965.25 an ounce by 00:53 ET (04:53 GMT). Both instruments were set to add nearly 2% this week.

Peak Fed rates in focus as inflation dips

The drop in U.S. inflation saw traders question whether the Fed will have enough impetus to carry out two more rate hikes this year.

While the central bank is widely expected to raise rates by 25 basis points later this month, markets are betting that the hike will mark the end of the Fed’s current rate hike cycle, and that rates will remain at 5.5% until next year.

While such a scenario bodes well for gold prices, given that higher rates push up the opportunity cost of holding non-yielding assets, further gains in the yellow metal are also likely to be limited, given that U.S. rates are at their highest in over 15 years.

Fed officials also warned that the central bank will seek clearer cues that inflation has retreated. Governor Christopher Waller said that strength in the labor market and economic activity also gives the Fed enough headroom to keep hiking interest rates.

Still, Fed Fund future prices show that markets are pricing in a greater possibility of U.S. rates peaking at 5.5% this year.

Copper retreats ahead of more China cues

Among industrial metals, copper prices retreated on Friday as data showed that Chinese imports of the red metal fell in June.

The country is the world’s largest copper importer, and is struggling with a sluggish economic recovery, which traders fear could dent global copper demand.

Copper futures fell 0.4% to $3.9385 a pound. But they were still trading up over 4% for the week, having benefited from a weaker dollar.

Focus is now on Chinese gross domestic product data due next week, to gauge the strength of the economy through the second quarter.

Markets are also looking out for more stimulus measures in the world’s second-largest economy.