Gold buoyed by rate cut bets; copper market disappointed with China stimulus

LONDON (October 14) Gold prices steadied on Monday after falling earlier in the session as traders weighed disappointing economic data from China against US rate cuts bets. 

Among industrial metals, copper prices slipped on Monday as China failed to announce a meaningful stimulus package.

The country is one of the biggest consumers of base metals. 

The deflationary pressures in China is likely to weigh on gold prices this week, according to analysts.

The country is among the top consumers of gold. 

At the time of writing, the most-active December contract of gold was at $2,677.80 per ounce, largely unchanged from the previous close. 

US rate cut bets

Last week, gold’s rally towards $2,700 per ounce was stalled due to expectations of a slower pace of rate cut by the US Federal Reserve. 

Hotter-than-expected inflation in the US in September dampened hopes of an oversized interest rate cut in November. 

The US Fed had cut interest rates by 50 basis points at its previous policy meeting, which surprised the market. 

Haresh Menghani, editor at Fxstreet, said in a note:

 

Investors have now fully priced out the possibility of another oversized interest rate cut by the US central bank in November. 

This keeps the US Treasury bond yields elevated and the US Dollar (USD) close to its highest level since mid-August touched last week, capping gains for the gold price. 

Traders were seen pricing in an 89.5% chance for a 25 basis point cut rate in November, CME Fedwatch showed. 

Even with a 25 basis point cut, lower interest rates bode well for gold prices. Lower interest rates increase the liquidity in the economy, and also bring down the borrowing costs for the public. 

Outlook for gold

Even as China’s economy falters and deflation worries take center stage, gold prices may get some support from geopolitical tensions and rate cut bets. 

Simmering tensions in the Middle East have increased safe-haven demand for the yellow metal in the last few weeks. 

As traders wait for Israel’s response to Iran’s attack on Tel Aviv on October 1, further escalations could boost gold to new record highs. 

On the positive front, gold on COMEX could scale over $2,700 per ounce if prices breach the $2,685 level hit in September, according to analysts. 

However, if prices fall below $2,630 per ounce, it could accelerate the drop towards $2,600 per ounce. 

Copper market not impressed with stimulus package

China’s inflation rate for both consumer price index and producer price index cooled in September more than analysts’ expectations. 

This creates headwinds for the economy as Beijing struggles to revive its economy.

On top of this, Saturday’s meeting of the finance ministry yielded no concrete measures. 

On Saturday, China’s finance minister pledged to significantly increase debt, but left investors guessing about the size of the stimulus package. 

Experts have termed Saturday’s meeting to be disappointing, while prices of major commodities such as copper slipped on Monday. 

Surplus in copper market weighs

Additionally, a surplus in the refined copper market has also weighed on sentiments of traders. 

Copper inventories in Shanghai Futures Exchange-monitored warehouses rose 10.5% since September 30. 

Meanwhile, for the first seven months of 2024, the market recorded a surplus of 527,000 metric tons, according to Kedia Advisory. 

At the time of writing, the three-month copper contract on the London Metal Exchange was down 0.3% at $9,741.50 per ton. 

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