Gold dips on a stronger dollar, but holds the line above $1650 an ounce as investors awaited Wednesday’s meeting of Federal Reserve policymakers and anticipated another large interest rate increase to curb soaring inflation.
Trading today is expected to be light as the London Bullion Market, the world’s largest physical gold center, will be closed for the Queen’s funeral.
High interest makes gold a less attractive investment, though the yellow metal has been a traditional hedge against inflation. The warring factors will likely keep the precious metal rangebound in choppy trading at least through the monetary policy decision.
Front-month gold futures tumbled 2.6% last week to settle at $1,683.50 an ounce on Comex, though they rose 0.4% Friday. Bullion dropped 3.1% in August after declining 1.4% in July. The metal retreated 3.5% in 2021. The December contract is currently down $11.10 (-0.66%) an ounce to $1672.40 and the DG spot price is $1669.50.
Investors are betting there’s an 82% chance of a 75-basis-point rate increase on Wednesday, with 18% projecting a 100-basis-point hike, according the CME FedWatch Tool. A month ago, 59% had anticipated only a 50-basis-point increase amid speculation at the time that the Fed’s previous rate hikes would have started to turn the inflationary tide. None anticipated a 100-basis-point gain until the latest consumer price index report came out last week, showing an increase in August from July and crushing hopes that the Fed’s previous rate hikes had stemmed further increases from 40-year highs in inflation.
The Fed raised rates by 75 basis points each in June and July and has increased rates by 225 basis points this year to combat surging inflation.
An increasing number of economists are sounding the alarm that the Fed’s aggressiveness and similar moves by other central banks could tip the global economy into recession.
So investors will also closely parse both the Fed statement Wednesday and Fed Chairman Jerome Powell’s comments after the meeting for the economic outlook as well as indications on how aggressive the central bank intends to be for the rest of the year and into 2023. Policy decisions are also due this week from the Bank of England, Bank of Japan, and a number of other central banks.
Front-month silver futures rose 3.3% last week to settle at $19.38 an ounce on Comex after the December contract advanced 0.6% Friday. Silver tumbled 12% last month after slipping 0.8% in July. It retreated 12% in 2021. Silver prices are tied to industrial demand. Currently, the December contract is down $0.096 (-0.50%) an ounce to $19.285 and the DG spot price is $19.43.
Spot palladium decreased 2.8% last week to $2,146.00 an ounce after dropping 1% Friday. Palladium retreated 3.3% in August after rising 9.9% in July. It dropped 22% in 2021. Currently, the DG spot price is up $8.80 an ounce to $2136.50.
Spot platinum rose 2.7% last week to $916.60 an ounce, though it slipped 0.1% Friday. Platinum tumbled 6.1% in August after decreasing 0.3% in July. It fell 9.4% last year. The DG spot price is currently up $5.40 an ounce to $918.40.
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