Gold Posts Losses as China Concerns Strengthens Dollar

Gold prices edged lower on Monday as China’s continued implementation of strict measures to contain COVID-19 raised concerns over sluggish activity in the world’s second-largest economy and pushed the US dollar up.

Spot gold slipped by 0.5% to $1,671.76 per ounce, while gold futures dropped 0.1% to $ 1,674.75 per ounce.

China Concerns, Fed May Keep Gold Under Pressure

The yellow metal reversed some of Friday’s sharp gains after US non-farm payrolls rose by 261,000 in October, surpassing the average 200,000 consensus, while the greenback declined.

However, the dollar bounced back on Monday after Chinese health officials stated over the weekend that the country remains committed to its current zero-COVID policy. The comments weakened the potential for an easing that led stocks to rally in the previous week.

The US dollar index climbed by 0.1% following the statement.

China’s vow also signaled further supply and economic disruptions from the country, an outlook that strengthened the greenback. The dollar has outperformed gold as a safe haven, as higher interest rates increased the opportunity cost of owning the yellow metal.

Moreover, a pressured gold in the coming months is likely, seeing the Federal Reserve’s continued hawkish stance to fight inflation. The US’s recent jobs data provided the central bank more reason to keep hiking rates.

Investors’ focus this week would be on the upcoming US inflation reading for October, which is expected to hit 8.0%, holding prices close to 40-year highs. The data could result in more hawkish moves from the Fed.

Copper prices also reversed a steep rally on Friday as they fell on a weaker demand outlook in China, the metal’s top importer. Copper futures traded 1.6% lower to $3.63 per ounce on Monday.

The country’s strict COVID-19 restrictions have held back economic activity this year, hurting its appetite for commodity imports. As China maintains its policy, the faltering trend is expected to stay.

Still, copper prices may find some support from a supply squeeze in the coming months, particularly on slowing output of the world’s largest producer of the metal, Chile.

In addition, the US’s sanctions on Russian exporters and more robust demand in the electric vehicle (EV) sector may contribute to the supply squeeze.