Gold prices rose on Tuesday as investors waited cautiously ahead of the start of the two-day meeting of the US Federal Reserve.
Silver rose, tracking sharp gains in gold as prices increased nearly 2% on Tuesday.
Meanwhile, oil prices fell slightly amid concerns over ample supply and as investors monitored the peace talks between Russia and Ukraine.
Base metal prices fell on the London Metal Exchange (LME) after the economic policy of the world’s biggest metal consumer, China, disappointed the market.
Gold climbs
Gold prices climbed on Tuesday as investors are anticipating an expected interest rate cut from the Federal Reserve in December.
They are also looking for indications from policymakers, as their two-day meeting starts later today, on whether they will signal a slower trajectory for future easing.
The market anticipates an 89.4% likelihood of a 25-basis-point rate cut following the conclusion of the Federal Reserve’s policy meeting on Wednesday, according to CME’s FedWatch Tool.
However, the primary interest remains on any forward guidance concerning the future trajectory of rates.
Historically, reduced interest rates tend to benefit non-yielding assets, such as gold.
Recent economic indicators have presented a mixed picture.
Last week’s data showed that the US Personal Consumption Expenditures Price Index, the Fed’s preferred inflation metric, aligned with forecasts, while consumer confidence improved during December.
Conversely, November saw private payrolls experience their most significant decline in over two and a half years, although jobless claims dropped to a three-year low for the week ending November 28.
Speculative buying by retail investors has amplified the increase in gold prices since September, according to a Bank for International Settlements (BIS) report. This behavior has caused gold to diverge from its typical role as a safe-haven asset.
“Instead, the rise in the price of gold has been in line with risky asset classes such as equities,” said Carsten Fritsch, commodity analyst at Commerzbank AG.
Oil falls
Oil prices fell slightly on Tuesday, extending a 2% drop in the prior session.
Investors are closely monitoring the latest developments, including ongoing peace negotiations to resolve the Russia-Ukraine conflict, worries about sufficient market supply, and an upcoming decision regarding US interest rates.
In November, China’s crude oil imports dramatically surpassed its domestic requirements, reaching 50.89 million tons, which equates to 12.4 million barrels per day, according to customs data.
The import volume in November was the highest recorded in a single month since August 2023 when measured on a daily basis. This figure represents an increase of 5% compared to the previous year and 9% compared to the previous month.
Oil prices dropped by over $1 a barrel on Monday. This decline followed the restoration of production at Iraq’s West Qurna 2 oilfield, operated by Lukoil and recognized as one of the world’s largest.
Meanwhile, following discussions in London with the leaders of France, Germany, and Britain, Ukrainian President Volodymyr Zelenskiy will present a revised peace proposal to the US.
At the time of writing, the price of West Texas Intermediate crude oil was at $58.72 per barrel, down 0.3%, while Brent was at $62.35 a barrel, down 0.2% from the previous close.
Base metals
The Communist Party of China’s Politburo met Monday to set the economic policy for the coming year, with a press release stating that domestic demand will be “prioritised.” This news initially boosted base metal prices on Monday.
However, prices then fell again during the course of the day.
“This could be because a close comparison of this year’s and last year’s press releases shows that priorities have not changed much,” Volkmar Baur, FX and commodity analyst at Commerzbank AG, said.
Domestic demand remains the top priority, similar to last year, although the current emphasis is on ‘prioritisation’ rather than the ‘increase’ discussed previously. This focus comes amid slow growth in recent retail sales and an actual year-on-year decline in investment.
Baur said:
In contrast, Monday’s data showed that exports and the foreign trade surplus continue to grow strongly, unlike domestic demand.
Starting the week at a new record high, copper reached almost $11,800 per ton, marking a 33% increase since the beginning of the year.
Meanwhile, China reported strong economic performance with its third-largest monthly trade surplus ever, fueled by impressive export figures that were nearly 6% higher than the previous year.
Despite an increase in copper ore imports, which were up almost 13% year-over-year and nearly 8% for the first eleven months compared to the same period last year (recovering somewhat after a weak October), the copper-specific figures offered little overall support, according to Barbara Lambrecht, commodity analyst at Commerzbank.
The significant increase in China’s refined copper production—12.5% higher through October than the previous year—was a key factor.
This stronger growth in refined production, compared to the growth in copper ore imports, explains the acknowledged shortage of raw materials at smelters, Lambrecht added.
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