Gold prices saw marginal declines on Monday as lingering concerns over a hawkish stance by the Federal Reserve continued to weigh on the precious metal. These worries, coupled with a strong US dollar and rising yields, have contributed to gold’s recent weakness.
In recent weeks, gold has traded within a relatively narrow range as the specter of higher US interest rates has diminished its appeal. The Federal Reserve, in its recent communication, warned that interest rates could see further increases later this year, and any reductions in rates in 2023 may be smaller than previously expected, potentially leaving rates above 5%.
The outlook for higher interest rates does not bode well for gold, as it raises the opportunity cost of investing in the non-yielding asset. This trend has hindered gold’s performance over the past year, limiting its ability to mount a substantial recovery.
Spot gold exhibited a 0.1% decline, settling at $1,924.06 per ounce, while gold futures expiring in December recorded a similar 0.1% drop, trading at $1,943.30 per ounce as of 23:46 ET (03:46 GMT).
US Government Shutdown Concerns Provide Limited Support
Rising interest rates have prompted investors to favor the US dollar as a safe-haven asset over gold. This preference has kept sentiment towards gold largely subdued, even as global economic conditions have shown signs of deterioration.
Major economies are grappling with a resurgence in inflation, primarily driven by rising oil prices, which could potentially hinder economic growth this year.
Nonetheless, gold has found some support in recent sessions amid mounting fears of a potential US government shutdown. With Congress having less than a week to authorize a spending plan to avert a shutdown, concerns are growing. A government shutdown could lead to the suspension of significant portions of government infrastructure.
However, historical precedent suggests that such scenarios have offered limited support to gold in the past. During the longest government shutdown in history, which lasted 35 days from 2018 to 2019, gold prices saw only a modest increase of approximately $20.
Copper Prices Remain Subdued Amid China Property Market Worries
Copper prices experienced limited movement on Monday amidst growing concerns about additional economic challenges in China, a major importer of the industrial metal.
Copper futures steadied at $3.6947 per pound after closing slightly lower in the previous week.
Worries over China’s property market came to the forefront on Monday following an announcement by embattled developer China Evergrande Group (HK:3333), stating that it would be unable to issue new debt due to an ongoing government investigation into one of its subsidiaries.
These developments have heightened concerns about a broader debt freeze in the Chinese property market, potentially having severe repercussions for the country’s economy. The property sector has been grappling with a cash shortage lasting three years and has received limited fiscal support from Beijing.
The property market accounts for approximately 25% of overall Chinese economic growth and serves as a key driver of copper demand.
Market focus this week also centers on Chinese purchasing managers’ index (PMI) data scheduled for release on Friday, which is expected to provide further insights into business activity.
