Gold hits best level in six months awaiting Fed minutes

Gold started the new year on the right foot, after closing out the volatile 2022 virtually unchanged, and its prices hit more than six-month highs on Tuesday, as investors braced for the latest Federal Reserve policy minutes this Wednesday.

Spot gold rose 0.8% to $1,838.56 an ounce, after hitting a high not seen since June 17 of $1,849.89. US gold futures gained 1.1% to $1,846.10.

With an economy that could slip into recession, uncertainty about the Fed’s rate hike path and geopolitical risks, “investors remain a bit cautious, and gold looks quite attractive,” said Edward Moya, a senior analyst at OANDA.

Returns on 10-year US Treasuries fell to near one-week lows, lowering the opportunity cost of holding gold, which does not yield interest.

Market attention now turns to the minutes of the Fed’s December policy meeting and other economic data expected this week.

Although gold is seen as a hedge against economic uncertainty, it tends to lose its appeal in a higher interest rate environment.

Bullion posted a small annual loss in 2022 as hawkish Fed policies fueled a dollar rally that called into question the precious metal’s role as a safe haven.

Among other precious metals, spot silver rose 0.3% to $24.07 an ounce and platinum added 1.5% to $1,085.50. Palladium was down 5.3% to $1,699.58 an ounce as “recession fears and a worsening outlook for electric vehicles weighed on both platinum and palladium,” according to Moya.

For its part, copper prices traded in a narrow range, but confidence was negative due to a stronger dollar and deteriorating demand prospects due to weak growth in China and other major economies.

Meanwhile, nickel soared more than 6% to $31.975 a tonne, a more than three-week high, on expectations of repurchases of a large number of short positions due in January.

The metal gained 3.3%, while benchmark copper on the London Metal Exchange fell 0.6% to $8,319 a tonne.

They fear less demand

The purchasing managers’ survey (PMI) in China’s manufacturing sector showed activity contracted at a steeper pace in December as infections disrupted production and hit demand.

The lower demand for imported copper in China can be seen in the premium for the Yangshan metal, which at $37.50 a tonne on December 30 has plunged more than 70% since mid-October.

Zinc stocks in LME registered warehouses are at their lowest level since August 1989.

Industrial metals came under pressure from the strength of the dollar, which when rising makes greenback-priced commodities more expensive for holders of other currencies, which could dampen demand.

Among other metals, aluminum fell 2.3% to $2,317 a tonne, while zinc rose 0.3% to $2,981, lead fell 0.6% to $2,280 and tin added 3.3% to $25,410.