Gold prices decline as dollar strengthens and yields rise due to hawkish Fed comments.

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Gold prices in Asian trade experienced a decline due to a stronger dollar and higher Treasury yields. Federal Reserve officials, including Minneapolis Fed President Neel Kashkari, reiterated the bank’s outlook for higher interest rates. Kashkari stated that he expected rates to rise at least once more in 2023 and remain higher through 2024. These comments echoed those made by Fed Chair Jerome Powell, who also predicted one more rate hike this year. The expectation of higher rates negatively impacted gold’s prospects as it increased the opportunity cost of investing in the non-yielding asset.

The stronger dollar, driven by the Fed’s hawkish rhetoric, contributed to the pressure on metal markets. This pushed the dollar to its highest level in 10 months against a basket of currencies. Additionally, Treasury yields surged to their highest level since 2007. Concerns over a U.S. government shutdown further supported the dollar’s advance, as higher rates increased its appeal as a safe haven compared to gold. Congress has limited time to pass a spending bill and avoid a shutdown, but little progress has been made in reaching a consensus.

Meanwhile, copper prices also declined due to ongoing worries about an economic slowdown in China, the largest copper importer. The market sentiment towards China was further affected by the news that property developer Evergrande Group will be unable to issue new debt due to a government investigation. This raised concerns about increased regulatory scrutiny in the sector, which is already facing financial difficulties. Since the property sector is a significant driver of copper demand, the decline in prices was also influenced.

Investors will be closely watching for data from China this week to gain more insights into business activity and potentially impact copper prices further.

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