Investors returned to the dollar in anticipation of further information on monetary policy from the Federal Reserve's December meeting minutes. This ended a recent rally in gold, driven by concerns about a potential recession and a slowdown in U.S. interest rate hikes, leading to increased demand for safe havens in addition to the dollar.
The dollar regained ground on Wednesday, benefiting from uncertainty surrounding the forthcoming Federal Reserve meeting minutes. Markets are waiting to see whether the central bank members supported further easing interest rate hikes during the December meeting, as several inflation indicators showed that U.S. price pressures may have peaked. Markets are now pricing in a more than 90% chance that the Federal Reserve will increase rates by an even smaller 25 basis points in February.
Spot gold fell by 0.1% to $1,838.66 per ounce, while gold futures fell by 0.1% to $1,844.65 per ounce by 19:22 ET. Both instruments had risen by more than 1% during their first full trading session of the year.
A warning from the International Monetary Fund about the potential for a recession in 2023 encouraged some investors to buy gold, as the possibility of a U.S. recession would weaken the appeal of the dollar.
Copper Prices Decrease Due to Concerns About China's Economic Recovery
Copper prices saw a weak start to the new year due to growing concerns about a delayed economic recovery in China. Copper futures were flat at around $3.7707 per pound on Wednesday after falling by nearly 2% in the previous session. Copper is sensitive to changes in the economic outlook due to its widespread use in industrial applications. A manufacturing slowdown in China, caused by COVID-related disruptions, saw copper prices declined by nearly 12% in 2022.
While China relaxed several COVID-related measures in December, it is now experiencing an unprecedented increase in the spread of the virus, which analysts fear could delay a wider reopening. However, the prospect of slower interest rate hikes by the Federal Reserve is expected to benefit metal markets in the short term, particularly if the dollar loses further ground. The dollar weakened significantly in the fourth quarter of 2022, which saw metal markets recover some lost ground.