Gold prices reached a steady state near one-month highs on Thursday, driven by weaker-than-expected US inflation data that fueled speculation of a less aggressive approach by the Federal Reserve. Meanwhile, copper prices experienced a surge due to the anticipation of additional stimulus measures in China, a major importer of the metal.
On Wednesday, the yellow metal achieved its most substantial intraday gain in over two months, following a decline in the dollar and Treasury yields caused by data indicating that US consumer price index (CPI) inflation had grown less than anticipated in June.
This data suggests that the Federal Reserve's aggressive interest rate hikes in the past year are starting to yield results, potentially leading to an earlier-than-expected tapering of the bank's hawkish stance.
Consequently, the pressure on gold stemming from high interest rates, which had weighed heavily on the precious metal throughout the year, is expected to ease. Higher lending rates increase the opportunity cost of holding non-yielding assets like gold.
Furthermore, the decline of the dollar to nearly 15-month lows after the CPI reading significantly benefited gold and other commodities priced in the greenback.
As of 20:48 ET (00:48 GMT), spot gold steadied at $1,957.07 per ounce, while gold futures remained unchanged at $1,961.45 per ounce. Both instruments recorded an approximately 1.3% rally on Wednesday, marking their most substantial intraday gain since early May.
Federal Reserve Still Expected to Raise Rates in July
Despite the softer CPI reading, inflation remains above the Federal Reserve's annual target of 2%. Consequently, it is likely that the central bank will implement further rate hikes in the near term. Market participants are currently pricing in at least a 25 basis point increase in an end-July meeting.
Several Fed officials have also indicated that additional rate hikes are expected in the coming months. They warned that core inflation remains stubbornly high and poses a potential threat of becoming entrenched. Although June's core CPI reading was lower than expected at 4.8%, it remained relatively high compared to the headline figure, which grew by 3%.
The Federal Reserve had previously projected a peak rate of at least 50 basis points above the current 5.25%. However, the soft labor data and weak CPI reading may lead to a shift in this stance during the bank's July meeting.
Copper Prices Bolstered by Weakening Dollar and Potential China Stimulus
Copper prices continued to rise on Thursday, reaching a three-week high following the soft US inflation data. This development has increased speculation that global economic growth will not deteriorate as much as initially feared this year.
Copper futures climbed 0.2% to $3.8595 per pound after experiencing a 2.4% rally in the previous session.
The red metal also received support from rumors of additional stimulus measures in China, the largest copper importer worldwide. Multiple reports from Chinese state media outlets suggest that the government is close to announcing further fiscal spending to bolster the slowing economic recovery.
