Gold prices rise to 7-month high as hawkish Fed fears ebb

By Ambar Warrick

Investing.com -- Gold prices rose on Monday, sticking to a seven-month high after signs of a cooling jobs market pushed up expectations for a softer U.S. inflation reading this week and an eventual turn in the Federal Reserve’s hawkish rhetoric.

Prices of the yellow metal surged on Friday after data from the Labor Department showed U.S. nonfarm payrolls grew at their slowest pace in a year in December. Readings for the previous two months were revised lower, while wage growth also eased.

The reading eased fears that an overheated U.S. jobs market will prevent inflation from easing further this year, and pushed up expectations that the Federal Reserve will soften its hawkish stance sooner than expected, letting up pressure on gold and other non-yielding assets.

Spot gold rose 0.1% to $1,868.61 an ounce, while gold futures rose 0.2% to $1,873.15 an ounce by 19:35 ET (00:35 GMT). Both instruments were trading at their highest level since early-June, after rallying nearly 2% on Friday.

The dollar softened further on Monday after reversing most of last week’s gains on the payrolls data, while 10-year Treasury yields also drifted lower.

Focus now turns to U.S. consumer price index inflation data due on Thursday for more cues on the path of U.S. interest rates. CPI inflation is expected to have sunk to a one-year low in December, indicating that a series of sharp interest rate hikes by the Fed in 2022 are having their intended effect.

These rate hikes walloped gold prices last year, as they pushed up the opportunity cost of holding non-yielding assets. But the yellow metal saw a resurgence in interest over the past month, with safe haven demand also coming back into play amid fears of a potential recession in 2023.

The Fed is now expected to further slow its pace of interest rate hikes, with a majority of traders pricing in an only 25 basis point hike in February. But the central bank has warned that it could keep rates higher for longer.

Among industrial metals, copper prices retreated slightly on Monday, but hovered near a seven-month high after optimism over the reopening of China’s international borders triggered a sharp rally in the red metal.

Copper futures fell 0.4% to $3.9588 a pound, coming off a 2.6% rally last week.

Prices of the red metal shot up after China further eased anti-COVID measures this month, a move markets hope will trigger a quick economic rebound in the world’s largest copper importer.