Gold prices blow past $1,950 on soft U.S. inflation, copper surges

Investing.com– Gold prices steadied near one-month highs on Thursday as weaker-than-expected U.S. inflation data spurred bets on a less aggressive Federal Reserve, while copper was buoyed by the prospect of more stimulus measures in major importer China.

The yellow metal logged its best intraday gain in more than two months on Wednesday, tracking a decline in the dollar and Treasury yields after data showed U.S. (CPI) inflation grew less than expected in June. 

The reading showed that aggressive interest rate hikes by the Fed over the past year were bearing fruit, and that the bank could taper its hawkish stance sooner than anticipated.

The scenario points to easing pressure on gold from high interest rates, which had otherwise weighed heavily on the yellow metal over the past year. High lending rates push up the opportunity cost of holding non-yielding assets such as gold.

A slump in the – which sank to near 15-month lows after the CPI reading- greatly benefited gold and other commodities priced in the greenback. 

steadied at $1,957.07 an ounce, while were flat at $1,961.45 an ounce by 20:48 ET (00:48 GMT). Both instruments rallied about 1.3% each on Wednesday, their best intraday gain since early-May.

Fed still seen hiking in July

Despite the softer CPI reading, inflation still remains above the Fed’s 2% annual target. This is likely to attract more rate hikes by the central bank in the near-term, with markets broadly pricing in an at least 25 basis point raise in an end-July meeting.

A slew of Fed officials also flagged more rate hikes in the coming months, warning that core inflation still remained stubbornly high, and posed the threat of becoming entrenched. June’s reading was lower than expected, at 4.8%, but still remained relatively high, and well above the headline figure, which grew 3%.

The Fed had earlier this year flagged a peak rate of at least 50 bps more than the current 5.25%, although soft labor data and the weak CPI reading may see a shift in this stance during the bank’s July meeting.

Copper buoyed by dollar weakness, China stimulus chatter 

Among industrial metals, copper prices extended gains on Thursday, hitting a three-week high as the soft U.S. inflation data spurred bets that global economic growth will not worsen as much as initially thought this year.

rose 0.2% to $3.8595 a pound, after rallying 2.4% in the prior session.

The red metal was also supported by speculation that China, the world’s largest copper importer, will roll out more stimulus measures to support a slowing economic recovery.

Multiple reports from Chinese state media outlets suggested that the government was close to outlining more fiscal spending. 

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