Gold futures are a bit up, but basically holding steady this morning, as the markets hold their breath ahead of an anticipated interest-rate cut by the U.S. Federal Reserve on Wednesday. Fed speculation, the U.S.-China trade standoff and geopolitical tensions in the Middle East sent gold to a six-year high this month by making the yellow metal more attractive as a hedge.
The CME FedWatch Tool has kept the odds of a July 31 rate cut at 100% since the Federal Open Market Committee’s last meeting in June. The tool shows the odds of a 50-basis-point cut have inched back up to 23.5% this morning with the likelihood of a 25-basis-point reduction at 76.5%.
U.S. second-quarter GDP data released Friday showed 2.1% growth, beating the expected 2% rise and trimming the odds of a 50-basis-point cut on Friday to 19.4%. GDP was the last major economic report before Fed policy makers meet this week. Last week, the European Central Bank signaled that an interest-rate cut could be coming, saying it expects its key rates to remain “at their present or lower levels” through at least the first part of 2020.
August gold slipped 0.5% last week to settle at $1,419.30 an ounce Friday on Comex. Currently, the August contracts are at $1,420, up $0.70.
The Dollar Index climbed to a two-year high on Friday and is trading slightly over that level at the time of this report at 98.15.
SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.14% to 818.14 metric tons Friday from Thursday, Reuters reported. And the U.S. Commodity Futures Trading Commission, or CFTC, reported Friday that hedge funds and money managers reduced their bullish stance in Comex gold in the week ended July 23.
On Friday, European central banks said they have scrapped a 20-year-old agreement to coordinate their gold sales. The ECB said they have no plan to sell large amounts of the metal, Reuters reported. The Central Bank Gold Agreement was originally signed in 1999 to coordinate gold sales by the various central banks and help stabilize the market for the precious metal.
Silver futures continued to outpace gold on Comex. The metal increased 1.3% last week, with the September contract settling at $16.40 an ounce Friday. It has inched up this morning, with the contract currently at $16.43.
Spot platinum was higher early Monday after gaining 2.3% last week. Spot palladium was lower. It increased 1.6% last week.
Events beyond the Fed meeting also have the potential to move markets this week: U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are set to travel to China on Monday for the first high-level, face-to-face trade negotiations between the world’s two biggest economies since talks broke down in May. On the Middle East, the head of Iran’s Atomic Energy Organization said Sunday that the country has enriched 24 tons of uranium since its 2015 nuclear deal with world powers.
On the economic calendar, the monthly U.S. payrolls report for July comes out Friday, and global manufacturing data comes out Thursday. Bank of Japan policy makers meet on Tuesday, and Brazil’s central bank may cut rates on Wednesday.