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Gold prices remained rangebound and close to two-month lows as investors awaited the upcoming Federal Reserve meeting. Gold has been trading in a tight range for nearly three weeks, under pressure from a stronger dollar and rising treasury yields. Speculation about the Fed's stance on interest rate hikes has influenced market sentiment, with surprise rate hikes in Australia and Canada increasing expectations of a similar move by the Fed. However, concerns over cooling U.S. economic growth limit the central bank's room for further rate increases.
Rising interest rates adversely affect non-yielding assets like gold by increasing opportunity costs. Even if the Fed announces a pause in rate hikes, U.S. rates will remain high for some time, maintaining pressure on metal markets. Nevertheless, analysts believe gold could benefit from safe-haven demand if a U.S. recession occurs later this year. However, the dollar’s strength will limit gold’s gains for now.
In the industrial metals market, copper prices declined slightly due to weak economic signals from China. Chinese trade data showed a 4.6% decrease in copper imports in May, while the country’s overall trade surplus reached a 13-month low. The drop in exports, particularly in China’s manufacturing sector, indicates potential economic challenges, dampening copper demand.
In the oil market, concerns about weakening demand caused by the global slowdown overshadowed Saudi Arabia’s planned output cuts. While Saudi Arabia’s efforts to reduce output supported a 1% increase in oil prices the previous day, rising U.S. fuel stocks and weak Chinese economic data offset the gains. The market has remained within a wide-ranging pattern since the beginning of the year, with immediate resistance at the $80 level for Brent crude. The larger-than-expected build in U.S. fuel inventories raised concerns about demand from the world’s top oil consumer, despite expectations of increased travel during the Memorial Day weekend. Conversely, U.S. crude inventories unexpectedly fell, driven by refiners producing fuel at the highest level since 2019 during the holiday period.
Overall, market sentiment in gold, copper, and oil remains subdued as economic indicators point to a lower demand outlook and central bank policies.