Gold Drifts Lower ahead of Fed

Gold Drifts Lower ahead of Fed

Gold drifts a tad lower ahead of the Fed January meeting, after five consecutive weeks of gains, with both a softer dollar. Trading early in the day was muted by the Lunar New Year holiday observed in most Asian hubs.

The likelihood of smaller interest rate hikes is seen as bullish for gold. The precious metal comes under pressure from higher rates, which diminish its attractiveness as a haven asset. Prices are likely to be rangebound ahead of the Fed’s next monetary policy announcement on Feb. 1. 

Front-month gold futures rose 1.2% last week to settle at $1,944.90 an ounce on Comex as the most-active contract rolled to April from February. The April contract advanced 0.2% Friday. Bullion gained 3.8% in December after increasing 7.3% in November. It was the first two-month rally since March. The metal fell $2.40 in 2022. The February contract is currently down $9.9 (-0.51%) an ounce to $1918.30 and the DG spot price is $1914.60.

Almost all the investors tracked by the CME FedWatch Tool are now betting that the Fed will boost interest rates by just 25 basis points next month, compared with 65.9% a month ago. The tool shows 99.8% of investors anticipating a 25-basis-point hike, with the remaining 0.2% expecting the Fed to leave rates unchanged. 

The Fed raised rates by 50 basis points in December and by 75 basis points each in June, July, September, and November. Rates increased by 425 basis points in 2022 to 4.25% to 4.5%, the highest level in 15 years. 

Declines in both the producer price index and consumer price index in December added fuel to speculation that the Fed will slow the pace of its rate hikes. They were seen as signals that the increases are already starting to impact high inflation, so the Fed may be able to become less aggressive in its monetary policy. 

The Fed’s favorite inflation measure, the personal consumption expenditures price index, or PCE, is due out Friday and will be closely watched for further indications of the Fed’s likely next moves.

The PPI, released last week, showed that wholesale prices fell 0.5% last month, more than estimated and the largest decrease on a monthly basis since April 2020. The prior week, a report showed the CPI fell 0.1% in December from a month earlier. It was the biggest monthly decrease since the early days of the COVID-19 pandemic. 

The University of Michigan’s consumer sentiment index for January also comes out Friday. U.S. weekly initial jobless claims are due out Thursday, along with durable goods orders and new home sales for December.  

Front-month silver futures decreased 1.8% last week to settle at $23.94 an ounce on Comex, though the March contract gained 0.3% Friday. Silver rose 10% in December after increasing 14% in November, its biggest monthly gain since December 2020. It advanced 3% in 2022. The March contract is currently down $0.755 (-3.15%) an ounce to $23.180

Spot palladium dropped 3.5% last week to $1,745.00 an ounce, after falling 1.4% Friday. Palladium tumbled 4% in December after gaining 0.3% in November. It lost 5.7% in 2022. The current DG spot price is down $17.70 an ounce to $1730.50.

Spot platinum fell 2% last week to $1,049.70 an ounce, though it rose 0.8% Friday. Platinum increased 3.4% last month after rising 11% in November, its best month since February 2021. It surged 10% in 2022. Currently, the DG spot price is down $8.10 an ounce to $1039.70.

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