Gold prices rise as Fed fears ease ahead of CPI report

Gold prices edged higher on Wednesday, sticking close to a three-week high as markets bet that the Federal Reserve was close to reaching peak interest rates, with focus turning to upcoming consumer inflation data.

The prospect of an eventual end to the Fed’s current rate hike cycle saw investors pivot out of the dollar and into other rate-sensitive assets, particularly stocks and commodities.

This trade benefited gold, with spot gold up 0.1% to $1,933.87 an ounce, while gold futures rose 0.1% to $1,939.00 an ounce by 20:13 ET (00:13 GMT).

Weakness in the dollar also supported the yellow metal, with the greenback trading at two-month lows on Wednesday.

U.S. CPI data, July rate hike in focus
Markets were now largely awaiting key U.S. consumer price index (CPI) inflation data for June. While the reading is expected to show that headline inflation dipped last month, thanks to easing gasoline prices, core CPI is expected to have remained sticky.

Sticky inflation is widely expected to attract more rate hikes from the Fed, with the central bank set to raise rates by at least 25 basis points in an end-July meeting.

Recent comments from Fed officials reiterated that while the central bank was close to reaching its peak interest rates, interest rates will still rise in the near-term. U.S. rates are also expected to remain higher for longer.

While the prospect of an eventual end to the Fed’s rate hike cycle buoyed gold, higher-for-longer rates are expected to keep any further gains in the yellow metal limited, given that they increase the opportunity cost of holding bullion.

Focus this week is also on comments from more Fed officials, including Minneapolis Fed president Neel Kashkari and Cleveland Fed president Loretta Mester.

Copper caught between weak growth outlook, China stimulus bets
Copper prices moved little on Wednesday, having come under pressure from concerns that higher interest rates will erode industrial activity across the globe.

But the prospect of improving demand in world no.1 copper importer China, coupled with a weak dollar, helped keep a floor under prices of the red metal.

Copper futures steadied at $3.7737 a pound.

Chinese Communist Party-backed media house the China Securities Journal reported on Wednesday that Beijing is likely to increase stimulus spending to support the economy.

The report comes after a slew of weak economic readings from China pointed to a slowing post-COVID economic rebound, which had in turn dented copper prices.

But more stimulus measures, particularly those aimed at the property sector, are expected to spruce up the Chinese economy, and in turn copper demand.