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Backwardation Gold Futures Anticipate Weekly Gains From A Less Aggressive Fed

Haiden Holmes

Nov 25, 2022 14:46


Gold prices entered backwardation on Friday and were poised for moderate gains this week, as optimism on the potential of slower rate hikes by the U.S. Federal Reserve outweighed weakening economic indicators.

Gold spot prices were higher than futures prices, a phenomenon known as backwardation, indicating that future demand for the yellow metal may grow.

As of 19:40 EST, spot gold slipped 0.1% to $1,753.20 per ounce, while December gold futures fell 0.1% to $1,753.75 per ounce (00:40 GMT). This week, it was anticipated that both assets would grow by 0.3%.

The U.S. holiday on Thursday supplied metal markets with few trade signals, and trading volumes remained low. The publication of the minutes from the Federal Reserve's November meeting boosted prices this week.

Several members of the central bank judged it appropriate to delay the rate of interest rate increases in order to evaluate the economic effects of a big increase in interest rates this year, as stated in the minutes. This means that pressure on metal prices may ease in the near future.

However, interest rates in the United States remain at levels not seen since the 2008 financial crisis and are predicted to reach far higher peaks.

In the next few months, gold may benefit from increased demand for safe-haven assets, particularly if the dollar continues to weaken and global economic conditions deteriorate. This week's release of PMI data from Japan and the United States, along with China's record-high daily COVID-19 infection rate, painted a grim picture of the world's two largest economies.

As a result of dovish Fed signals, bets were placed that U.S. inflation and the Fed's rate hike pace had reached their apex for the year. A plunging greenback helped bolster global metal markets.

On Friday, silver futures rose 0.3% and were anticipated to gain 2% this week, whilst platinum futures decreased 0.2% and were anticipated to gain 1% this week.

Due to negative signals emanating from the world's top importer, China, copper prices were anticipated to end the week essentially unchanged.

Copper futures rose 0.2% to $3,6360 a pound and were anticipated to end the week 0.1% higher.

This week, China imposed movement restrictions in a number of key cities, as the country faces its largest COVID-19 epidemic to date with daily infection rates that have never been seen before.

This year, COVID-related interruptions have slowed Chinese economic development, which has had a severe impact on metal demand in the world's largest copper importer.

Despite signals of a tighter supply, the picture for copper remains dismal because growth is anticipated to decline even further as a result of the current epidemic.