Gold prices close down ahead of U.S. inflation data

© Reuters.

Investing.com-- Gold prices fell Tuesday as the dollar rebounded ahead of the release of key U.S. inflation data, and copper slipped too on apparent profit-taking after early gains inspired by better confidence in China's economy. 

Bullion prices initially found some relief as the dollar retreated from a near six-month peak on some profit taking. But the greenback rebounded in later trading, remaining within sight of recent highs.

The outlook for U.S. inflation and interest rates remained high, pointing to more pressure on gold prices in the coming months. This trade had also battered gold through the past year, as rising interest rates pushed up the opportunity cost of investing in bullion.

Gold futures’ most-active December contract settled at $1,935.10 an ounce on New York’s Comex, down $12.10, or 0.6%, on the day.

Spot gold hovered at above $1,913 an ounce by 15:37 ET (19:37 GMT), down 0.5% on the day.

U.S. CPI, Fed meeting awaited 

Focus is now squarely on a consumer price index inflation reading for August, which is expected to show inflation growing at a faster pace than July. U.S. inflation is expected to have picked up amid higher fuel costs and resilient retail spending. 

The reading is also expected to set the tone for a Federal Reserve meeting next week, with higher inflation giving the central bank more impetus to keep rates higher, or even hike them further this year.

While the bank is widely expected to keep rates on hold in September, a stronger inflation reading could elicit a more hawkish outlook from the Fed. The central bank is also set to keep rates at over 20-year peaks until at least mid-2024.

Such a scenario presents a weak outlook for gold, given that the dollar and Treasury yields are likely to rise further in a high interest rate environment. Waning fears of a U.S. recession have also stymied safe haven demand for gold, although worsening trade tensions between the U.S. and China saw bullion catch some bids. 

Copper dips after early optimism over China

Among industrial metals, copper prices gave back early gains inspired by positive economic readings on China. 

Copper futures on New York's Comex settled down 1.5 cents, or 0.4%, at $3.7920 a pound, after an over 1% rally in the prior session.

Data released on Monday showed substantial improvement in Chinese lending activity through August, amid continued monetary support from the government. 

The readings also came after data released over the weekend showed that Chinese consumer inflation recovered from deflationary territory in August. This ramped up hopes that China’s economy was turning around after a severe slowdown this year.

Despite the better consumer inflation, a Reuters poll showed that China’s economy was expected to grow only 5% in 2023, in line with a conservative government forecast. Growth is expected to slow further in 2024. That cast a pall over whatever bullishness markets may have had on the world’s largest copper importer.

(Ambar Warrick contributed to this item)