Gold and copper gain as dollar falls on Fed pause speculation

Gold and other metal markets stabilized today and appeared poised for another week of positive performance. This came as the dollar weakened, driven by expectations that the Federal Reserve would halt its cycle of interest rate hikes in the coming week. Earlier in the week, the price of gold experienced its most significant intraday increase in two weeks, reaching the upper end of a trading range observed since mid-May. This surge was fueled by a rise in weekly jobless claims in the United States, which increased speculation of a pause in Federal Reserve actions. Following the release of this data, the dollar experienced its most substantial decline since late March, while Treasury yields also eased. Consequently, metal markets priced in U.S. currency benefited from these developments. Weakness in the labor market, coupled with some signs of easing inflation, may prompt the Federal Reserve to pause its rate hike cycle during its upcoming meeting. However, recent indicators such as personal consumption and nonfarm payrolls have exceeded expectations, causing uncertainty regarding the central bank's future actions.

 Market projections derived from Fed Fund futures prices indicate a nearly 76% likelihood of a June pause, with a 24% probability of a 25 basis point hike.Next week, the release of consumer inflation data will provide further insights into the Fed's potential interest rate decisions. While gold could receive some support if the Federal Reserve pauses its actions next week, its gains are expected to be limited due to the likelihood of higher U.S. interest rates throughout the year.Nonetheless, if economic conditions worsen this year, there could be increased demand for gold as a safe haven, particularly if a pause in the Federal Reserve's rate hike cycle weakens the dollar's support. Analysts at Citi and Commerzbank suggested that a Federal Reserve pause would also generate positive trends for gold.Meanwhile, copper prices stabilized on Friday and were on track for a second consecutive week of gains, rebounding from six-month lows reached in May. Copper futures remained unchanged at $3.7875 per pound, anticipating a 1.6% increase for the week. However, despite the two-week recovery, the outlook for copper remains gloomy, particularly in light of deteriorating economic conditions worldwide. Concerns over a slowing economic recovery in China have significantly dampened sentiment towards copper.

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