In a dramatic turn of events, gold prices experienced a significant dip on Wednesday, breaching the critical $1,900 threshold. This decline comes as persistent concerns about escalating interest rates, driven by hawkish signals emanating from the Federal Reserve, prompted investors to flock to the dollar, forsaking the precious metal.
The greenback, in a remarkable ascent, reached a 10-month high this week, effectively overshadowing gold’s status as a safe haven for most of this year, owing to the rising interest rates. With the Federal Reserve now signaling the possibility of another rate hike in 2023 and a reduction in rate cuts next year, this trend seems poised to persist.
Adding to the pressure on gold’s allure is the surging Treasury yields, with the 10-year benchmark reaching a 16-year high this week.
Spot gold, which signifies real-time trading in physical bullion, saw a 0.2% decline, settling at $1,897.49 per ounce, a level it had not seen in over a month, dipping below the psychologically significant $1,900 mark.
Gold futures, set to expire in December, mirrored this decline, dropping by 0.2% to $1,914.95 per ounce. These futures were also trading at one-month lows by 00:31 ET (04:31 GMT), marking a third consecutive session of losses for both instruments.
It’s worth noting that rising interest rates tend to elevate the opportunity cost associated with investing in assets like gold, which offer no yield. This has been a predominant factor behind the yellow metal’s struggles over the past year.
Unfortunately for gold enthusiasts, any prospects of a recovery in its value remain shrouded in uncertainty due to the potential for U.S. interest rates to remain elevated for an extended period.
Gold’s Safe Haven Status Falters Amid Looming Government Shutdown
Despite growing concerns in the markets regarding a possible U.S. government shutdown, gold, traditionally seen as a safe haven asset during times of economic uncertainty, failed to attract significant investor interest. Congress faces a deadline until the end of September to pass a spending bill, but signs of consensus on a broader spending bill remain elusive among policymakers.
Financial analysts have sounded alarm bells about the potential consequences of a government shutdown in 2023, especially as the U.S. grapples with high interest rates and persistent inflation. However, this notion has failed to drive substantial inflows into gold, as past government shutdowns have had limited impacts on risk-driven assets, particularly stocks.
Copper Struggles Amidst Positive Chinese Data and Lingering Property Concerns
Among industrial metals, copper prices saw a decline on Wednesday, despite positive data indicating a rebound in China’s industrial profits after nearly a year-long slump. Copper futures fell by 0.2%, settling at $3.6402 per pound, dangerously close to a one-month low.
While optimism prevailed due to the encouraging Chinese data, it was overshadowed by mounting apprehensions about a potential property market crisis. Reports emerged suggesting that the chairman of beleaguered developer China Evergrande Group (HK:3333) had come under police surveillance. This development occurred just days after the company suspended its debt restructuring plan amid an investigation into its subsidiary, Hengda Real Estate.
China Evergrande Group is currently the world’s most indebted property developer, and its ongoing debt crisis has significantly impacted China’s economic growth over the past three years. Given that China’s property market is a key driver of copper demand, concerns surrounding this sector have continued to exert downward pressure on copper prices over the past year.