Gold prices surged to a 2-½ month high last Friday, marking their best week in over eight months. The boost came as U.S. inflation showed signs of cooling down, leading to speculation that the Federal Reserve may slow down its pace of interest rate hikes. This softer-than-expected reading caused metal markets to rally, with expectations for a smaller interest rate hike by the Fed increasing significantly. U.S. CPI inflation grew 7.7% in October, its slowest pace in nine months, leading to a surge in bullion prices.
The U.S. dollar weakened and U.S. Treasury yields fell below 4% as a result of the inflation data. This helped boost gold prices, which have been under pressure this year due to rising interest rates. Gold fell 0.2% to $1,751.92 an ounce, while silver also fell 0.2% to $1,755.20 an ounce. Both instruments rallied nearly 3% on Thursday and were set to gain 4.3% for the week, their best performance since late February. Despite signs of slowing inflation, price pressures still remain above the Fed’s 2% target, potentially leading to more interest rate hikes in the future.
Fed Chair Jerome Powell has indicated that interest rates could peak at higher levels than expected, signaling that the Fed is willing to risk some economic damage in its fight against inflation. This could result in continued pressure on most assets from higher interest rates. Industrial metals, including copper, also saw a surge after the inflation data. Copper prices hovered around 2-½ month highs on Friday, despite falling 0.2% to $3.7700. Prices of copper have been impacted by concerns over sluggish demand in major importer China, but tightening supply in major producers Chile and Peru is expected to support prices in the medium term.
Investors have become more optimistic about a smaller interest rate hike by the Fed in December, with markets now pricing in a higher chance compared to the previous week. This optimism has led to a boost in metal markets, with gold and silver prices rallying significantly. While inflation in the U.S. showed signs of slowing in October, price pressures remain above the Fed’s target, hinting at potential future rate hikes. Fed Chair Jerome Powell’s comments on interest rates potentially reaching higher levels than expected have also raised concerns among investors. Despite this, industrial metals like copper continue to perform well, benefiting from tightening supply and strong demand.
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