On Monday, the price of gold rose slightly after enduring heavy losses in the past week. Meanwhile, copper prices moved a little but remained largely flat. The upcoming key economic data from the U.S. and China will dictate the rates of precious metals.
Last week, credit rating agency Fitch downgraded the U.S. government from its top-tier AAA rating to AA+. Rising federal debt and deteriorating governance standards over the last 20 years were cited by Fitch as the reasons behind its decision.
Rising U.S. Interest Rates Affecting The Price Of Gold
Even though AA+ is an investor-grade rating, the slashing resulted in Wall Street experiencing its biggest single-day loss in months. The S&P 500, Dow Jones, and Nasdaq all fell to their lowest since April.
Meanwhile, the added pressure of rising yields on U.S. Treasury bonds and concerns about interest rate hikes by the Federal Reserve to combat inflation have impacted gold prices and the recovery of the dollar in recent sessions.
The metal markets are now focused on the upcoming U.S. consumer price index (CPI) inflation data that will be put out by the Fed on Thursday, August 10. This will shed more light on the current conditions of the world’s largest economy.
Analysts predict inflation numbers to rise once again after sharply declining in June. This means that the Federal Reserve will be forced to raise interest rates on the dollar yet again at the next Federal Open Markets Commission (FOMC) meeting in September.
If the inflation numbers are strong, the price of gold will retreat even further, while the dollar will appreciate due to high-interest rates. Interestingly, the scheme to raise U.S. interest rates well into the future has weighed on the bullion as traders prefer the dollar despite Fitch downgrading its U.S. sovereign rating.
But, the yellow metal saw some uptick in prices on Friday after the U.S. government’s latest non-farm payrolls data showed weaker-than-expected job creation numbers. A higher-than-expected figure is deemed bullish for the dollar, while a lower-than-expected figure hurts the greenback.
Spot gold rose by 0.1% to $1,945.03 an ounce, while gold futures expiring in December 2023 rose 0.2% to $1,979.60 an ounce.
However, gold prices still dropped 1% from the previous week when the markets closed on Friday, which was its worst performance in over a month.
Copper Markets Weigh-In On Chinese CPI Data
Meanwhile, copper futures fell 0.1% on Monday to $3.85 a pound. The market price of the metal also didn’t fare well as analysts are watching out for upcoming economic indicators from China.
China, which is the world’s largest importer of copper, is set to release its inflation and trade data later this week. Both readings are vital for the country’s economy which is facing a slow recovery and is on the brink of a major collapse.
The Chinese real estate industry has already seen the effects of this as it has been thrust into a severe debt crisis that was fueled by the government’s move to rein in the rising national debt.
Although copper imports have remained steady so far this year, the worsening economic situation has raised concerns about whether China will be able to maintain its supply and demand pace.
Analysts are expecting an eventual deterioration in demand for the metal. To make matters worse, last week’s economic data showed that the country has started its third quarter from a much weaker position.
Other precious metals such as silver and platinum had mixed results on Monday. While platinum futures rose 0.4%, silver dropped 0.2%. The metals market is still figuring its way out of last week’s losses.