Gold prices in Asia experienced a decline due to the strengthening of the dollar and higher Treasury yields. Federal Reserve officials, including Minneapolis Fed President Neel Kashkari, reiterated the bank’s outlook for higher interest rates, with Kashkari expecting rates to rise at least once more in 2023 and remain higher through 2024. This aligns with Fed Chair Jerome Powell’s recent comments about one more rate hike this year and downplaying expectations for rate cuts next year. The outlook for higher rates diminished the prospects for gold, as higher yields increase the opportunity cost of investing in the non-yielding asset.
The strength of the dollar, driven by the Fed’s hawkish rhetoric, also contributed to the pressure on metal markets. The dollar reached its highest level in 10 months against a basket of currencies. Treasury yields also surged to their highest level since 2007 following the Fed’s meeting last week. Additionally, concerns over a possible U.S. government shutdown further supported the dollar’s safe haven appeal over gold. Despite being considered a safe haven, past government shutdowns have seen minimal actual gains for gold prices.
In the industrial metals market, copper prices faced losses amid persistent concerns about an economic slowdown in China, the world’s largest copper importer. These concerns were heightened by Chinese property developer Evergrande Group’s announcement that it would be unable to issue new debt due to a government investigation. This increased fears of more regulatory scrutiny towards the sector, which is already dealing with a cash crunch. The property sector is a significant driver of copper demand. All eyes are now on China’s data on business activity for more insights into its economic performance.