A Hawkish Federal Reserve Predicts A Recession, Boosting Gold Prices

Gold prices continued to rise on Monday, holding a seven-month high, as evidence of a worsening job market raised expectations for a lower U.S. inflation estimate this week and a possible shift in the Federal Reserve's hawkish tone.

According to numbers provided by the U.S. Department of Labor on Friday, nonfarm payrolls in the United States grew at their slowest rate in a year in December. The results for the preceding two months were revised downwards, and wage growth also slowed.

The report soothed concerns that an overheated U.S. labor market will prevent inflation from falling further this year and increased the likelihood that the Federal Reserve will relax its hawkish stance sooner than expected, lessening pressure on gold and other non-yielding assets.

As of 19:35 E.T., spot gold rose 0.1% to $1,868.61 per ounce, while gold futures rose 0.2% to $1,871.15 per ounce (00:35 GMT). Following an almost two percent increase on Friday, the value of both assets reached its highest point since early June.

After reversing the entirety of last week's payrolls-related gains, the dollar and 10-year Treasury yields declined further on Monday.

The focus now switches to Thursday's U.S. consumer price index inflation data for fresh hints on the future direction of U.S. interest rates. Inflation, as measured by the CPI, is expected to have reached a one-year low in December, demonstrating that the Fed's series of sudden interest rate hikes in 2022 had had the desired impact.

Last year, these rate hikes crushed gold prices by increasing the opportunity cost of holding non-yielding assets. However, the yellow metal has experienced a resurgence in popularity over the past month, as safe-haven demand has returned due to fears of a possible recession in 2023.

The majority of traders predict that the Fed will not raise interest rates in February by more than 25 basis points. However, the central bank has cautioned that it may keep interest rates elevated for a longer period of time.

Copper prices slipped slightly on Monday, but remained near a seven-month high after the reopening of China's foreign borders prompted a large increase in the price of the red metal.

Following a 2.6% advance last week, copper futures dipped 0.4% to $3.9588 per pound.

As a result of China's additional easing of anti-COVID rules this month, markets anticipate a rapid economic recovery in the largest copper importer in the world.