The price of gold remained stable on Wednesday, while copper continued to advance strongly as risk-driven assets rose on predictions that the Federal Reserve will raise interest rates more gradually going forward, which also limited dollar gains. The Federal Reserve is expected to raise interest rates in December by a very narrow margin of 50 basis points (bps), according to an increasing number of Fed officials in recent weeks. As a result, more and more wagers are being placed that the rate of inflation in the United States has peaked and that the central bank would eventually slow down the rate of interest rate increases.
Gold futures were steady at $1,741.25 per ounce, while spot gold. Given that rising interest rates increased the opportunity cost of keeping the yellow metal this year, the potential of lesser rate increases offers some respite for gold in the near term. Markets have set a 75% probability that the Fed will increase interest rates by 50 basis points in December. Even while gold has mostly recovered from this year’s losses, the yellow metal is still trading well below the two-year highs reached earlier this year.
Additionally, the metal’s effectiveness as an inflation buffer was mostly ineffective, and it lost its position as a safe haven for the dollar. On Wednesday, the dollar dropped from a two-week high, giving back some of its recent gains. On Tuesday, copper prices among industrial metals continued to rise, climbing higher from a 10-day low in the midst of a larger uptrend in risky assets. A pound of copper futures increased by 0.2% to $3.6290.
A growing number of COVID-19 cases in China raised concerns last week, which slowed down economic activity and reduced the demand for commodities in the nation. These fears led to a steep decline in the price of red metal. Although there are problems in major producers Chile and Peru, the red metal will also gain from a tighter supply. Production will likely be reduced as a result of U.S. sanctions against significant Russian metal suppliers.
