By Ambar Warrick
Investing.com -- Gold prices traded below key levels on Thursday, coming under pressure from a resurgence in the dollar and mounting expectations that major central banks across the globe will keep raising interest rates in the near-term.
Hotter-than-expected inflation in the UK cemented expectations for more rate hikes by the Bank of England, while markets also began to price in a greater chance of more hikes by the Federal Reserve in the next two months.
This pushed up bond yields across the board, weighing on non-yielding assets such as gold and other metals. The Fed’s Beige Book report released on Wednesday also showed that while economic conditions had somewhat cooled in recent weeks, inflation continued to run relatively hot.
Spot gold rose slightly to $1,996.49 an ounce, while gold futures steadied around $2,008.15 an ounce by 20:47 ET (00:47 GMT). Both instruments retreated on Wednesday, and were trading slightly lower for the week.
Markets were concerned that relatively high U.S. inflation will attract more interest rate hikes by the Fed, and that cooling economic growth will not dissuade the central bank from its hawkish path. This scenario bodes poorly for gold in the near-term, given that it pushes up the opportunity cost of holding the yellow metal.
Fed Fund futures prices show that markets are pricing in an 85% chance that the Fed will hike rates by 25 basis points in May, and a 28% chance for a similar hike in June - a big jump from last week’s 5% chance for a June hike. But markets are still positioning for a 62% chance the Fed will pause its rate hikes in June.
Expectations of more hikes pushed up the dollar and Treasury yields this week, which in turn weighed on metal markets. A slew of Fed speakers also reiterated that the bank will continue to act against inflation, and whether it will pause future rate hikes is largely contingent on economic data.
Other precious metals were flat on Thursday after retreating in the prior session. Platinum and silver futures moved less than 0.1% in either direction.
Among industrial metals, copper prices remained under pressure from uncertainty over slowing economic growth and industrial activity.
Copper futures fell 0.1% to $4.0710 a pound after retreating 0.5% in the prior session.
Mixed economic signals from China did little to support copper this week, as while growth rebounded in the first quarter of 2023, the manufacturing sector, a key driver of commodity demand in the country, continued to struggle.