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Gold prices edged lower in Asian trade on Wednesday, continuing to retreat from record highs as concerns over elevated U.S. interest rates grew ahead of crucial signals from the Federal Reserve.
Industrial Metals Also Under Pressure
The downward trend extended to industrial metals, with copper prices pulling back further from their recent peaks. The speculative frenzy in the red metal has cooled, with traders looking for more clarity on physical supply and overall demand.
A steady U.S. dollar also contributed to the decline in metal prices. Safe haven demand for gold waned in the absence of escalating geopolitical tensions in the Middle East, following the death of the Iranian President in a helicopter crash.
Spot gold dipped 0.2% to $2,415.61 an ounce, while gold futures for June delivery dropped 0.3% to $2,418.75 an ounce by 00:23 ET (04:23 GMT). Despite the pullback, spot prices remained close to their recent peak of $2,450.06 an ounce.
Gold Affected by Rate Jitters Ahead of Fed Minutes
The minutes from the Fed’s late-April meeting, due later on Wednesday, are now a focal point for the market. The Fed kept rates steady during this meeting, but Chair Jerome Powell indicated the possibility of rate cuts in 2024. Traders are keen to see if this outlook was shared by all Fed officials, particularly given the persistent inflation.
Several Fed officials have cautioned this week that more evidence of declining inflation is needed before considering rate cuts. These comments have bolstered the dollar and put pressure on high-risk and non-yielding assets.
Higher interest rates tend to negatively impact gold, as they increase the opportunity cost of holding the non-yielding asset. While safe haven demand had pushed gold to record highs earlier in the week, the lack of worsening geopolitical tensions left it vulnerable to rate pressures.
Other Precious Metals Follow Suit
Other precious metals also saw declines on Wednesday. Platinum futures fell 0.4% to $1,058.35 an ounce, while silver futures dropped 0.4% to $31.950 an ounce. Silver prices, which hit 12-year highs earlier this week due to speculative trading, are now cooling. Platinum prices remain near their one-year high.
Copper Prices Retreat as Speculative Activity Pauses
Benchmark copper futures on the London Metal Exchange fell 0.9% to $10,730.0 a ton on Wednesday, while one-month U.S. copper futures slipped 0.8% to $5.0595 a pound. Both contracts have pulled back from record highs reached earlier in the week.
The recent rally in copper, driven by speculative trading and a short squeeze on the Comex exchange, appears to have paused. Traders are now waiting to see if physical copper supplies can meet demand.
Cooling optimism regarding China, the world’s largest copper importer, has also contributed to the pullback in prices. Traders are watching to see how Beijing will implement its recently announced stimulus measures.
The current market dynamics indicate a cautious approach as investors await further signals from the Federal Reserve. While gold and other precious metals have seen significant gains recently, the potential for high U.S. interest rates and a stronger dollar are likely to continue influencing their trajectories. The outlook for industrial metals like copper will hinge on supply-demand fundamentals and developments in key markets like China.
Initially, J.P. Morgan foresees gold retreating from recent highs while interest rates remain elevated. However, they anticipate the US Federal Reserve (Fed) to start cutting rates later in the year.
Central banks worldwide are also likely to continue buying gold, supporting demand for the precious metal. China, in particular, remains a significant steady buyer.
Overall Sentiment:
Falling yields and geopolitical tensions are expected to drive gold prices to new highs in the second half of 2024. While short-term fluctuations may occur, the underlying factors, including central bank demand and interest rate dynamics, suggest a positive outlook for gold..
