Gold prices in Asia experienced a decline due to the strengthening of the US dollar and higher Treasury yields, as Federal Reserve officials reinforced the bank’s stance on increased interest rates. Neel Kashkari, the President of the Federal Reserve Bank of Minneapolis, stated that he anticipated rates to rise at least once more in 2023 and remain higher until 2024. These remarks align with those made by Fed Chair Jerome Powell, who emphasized the likelihood of another rate hike this year. The prospect of higher rates negatively impacted gold’s prospects as it increases the opportunity cost of investing in the non-yielding asset, resulting in a decrease in gold futures.
The pressure on metal markets primarily came from the stronger US dollar, which reached its highest level in 10 months against a basket of currencies following the Fed’s hawkish rhetoric. Additionally, Treasury yields surged to their highest level since 2007. Concerns over a potential US government shutdown also contributed to the dollar’s advance, as higher rates increased its appeal as a safe-haven asset compared to gold. Although gold is considered a safe haven, historical data from past government shutdowns indicates minimal actual gains in its value.
In the context of industrial metals, copper prices faced a decline due to ongoing worries about an economic slowdown in China, the world’s largest copper importer. Economic concerns surrounding China were further exacerbated by property developer China Evergrande Group’s announcement that it would be unable to issue new debt due to a government investigation. This development increased anxieties regarding additional regulatory scrutiny in a sector already suffering from a three-year cash crunch. The property sector is a significant driver of copper demand. As attention turns to data from China for further insights into business activity, copper prices have fallen to close to 1-½ month lows.
