Gold sticks above $1,700, ducks market rout as U.S. CPI data looms

By Ambar Warrick 

Investing.com-- Gold prices trimmed recent gains on Thursday, but remained pinned near a one-month high amid uncertainty over the U.S. midterm elections and as markets awaited key inflation data from the country later in the day.

Bullion prices logged strong gains this week as the dollar retreated in the run-up to the elections, with initial results showing that the Republicans were still favored to win both houses of Congress, although Democrats performed better than expected.

With vote counting for several states still underway, the results of the election remain uncertain in what appears to be a tight race.

Gold prices benefited from some safe haven demand, as doubts over the direction of U.S. fiscal policy dented the dollar and broader stock and currency markets. 

Spot gold fell slightly to $1,706.32 an ounce, while gold futures were largely unchanged at $1,709.30 an ounce by 18:58 ET (23:58 GMT). Both instruments fell 0.3% on Wednesday, but were trading up about 2% for the week. 

The dollar also recovered slightly on Wednesday, with the dollar index rising 0.7%. 

Focus now turns to U.S. CPI data, which is expected to show that inflation stuck near 40-year highs through October. The reading is widely expected to factor into the path of U.S. monetary policy in the near-term.

But several Federal Reserve members are now calling for smaller interest rate hikes. On Wednesday, Charles Evans, president of the Chicago Fed, called on the bank to adjust its rate hikes and avoid the potential economic fallout from raising rates too high.

Markets are pricing in a 66% chance that the central bank will raise rates by a smaller 50 basis points in December. While smaller rate hikes will provide some relief to metal markets, the notion that rates will peak at higher-than-expected levels is expected to keep sentiment dulled in the medium-term. 

Among industrial metals, copper prices steadied on Thursday on positive demand signals from major importer China. Copper futures were flat at about $3.6770 a pound, after falling 0.3% in the prior session. 

China’s top copper companies are reportedly urging the government to mine more of the red metal amid growing concerns over disruptions to global supply. 

The move comes as mining disruptions in Chile and Peru, coupled with U.S. sanctions on Russian producers, have tightened global copper markets.

This tightening in supply could benefit copper prices in the medium-term, with demand for the material also expected to heat up thanks to the electric vehicle industry.