Gold drops after Powell remarks

Gold drops after Powell remarks

Gold drops early Monday after Federal Reserve Chairman Jerome Powell remarks on Sunday that the central bank will move at a slower pace than the market expects to cut interest rates.

“We feel like we can approach the question of when to begin to reduce interest rates carefully,” he said on CBS’ 60 Minutes. “Our confidence is rising. We just want some more confidence before we take that very important step of beginning to cut interest rates.”

High interest rates are typically considered bearish for gold, so cuts would be supportive for the precious metal. But holding to high rates for a longer period of time would be bearish. The Fed kept interest rates unchanged at 5.25% to 5.50% last week amid declines in the inflation rate. The Fed has raised interest rates by 5.25 percentage points since March 2022 to curb inflation.

Front-month gold futures rose 0.9% last week to settle at $2,053.70 an ounce on Comex, though the most-active April contract fell 0.8% Friday. Bullion slipped 0.2% in January after gaining 0.7% in December and rising 3.2% in November. The metal rose 13% in 2023. The April contract is currently down $0.20 (-0.01%) an ounce to $2053.50 and the DG spot price is $2024.80.

Gold came under pressure Friday after the release of strong U.S. jobs data. The Fed has said it closely tracks labor market conditions as well as inflation when determining monetary policy.

The U.S. economy added 353,000 jobs in January, according to data released from the Bureau of Labor Statistics, blowing past economists’ estimates for a 1850,000 increase. The unemployment rate held at 3.7%, though economists had expected it to tick up to 3.8%. The strong jobs report means there’s less pressure on the Fed to begin cutting rates, since the labor market seems resilient.

The week before, the Fed’s favorite inflation measure, the personal consumption expenditures price index, showed that so-called core PCE, which excludes volatile food and energy prices, fell below 3% in December for the first time since March 2021. 

Powell reiterated in Sunday’s interview that the Fed is unlikely to start cutting rates at its next policy meeting in March; about 82.5% of the investors tracked by the CME FedWatch Tool are betting that the Fed will keep rates next month, while 17.5% expect a 25 basis point cut. A month ago, more than 60% of investors were anticipating a cut in March. A majority of investors tracked by the tool now anticipate a rate cut will come at the following meeting in May. 

Front-month silver futures dropped 0.3% last week to $22.80 an ounce on Comex after the March contract slid 1.9% Friday. Silver fell 3.8% in January after dropping 6.1% in December and advancing 12% in November. It ticked up 0.2% in 2023. The March contract is currently down $0.036 (-0.16%) an ounce to $22.760 and the DG spot price is $22.45.

Spot palladium fell 1.7% last week to $958.00 an ounce after declining 2.6% Friday. Palladium tumbled 11% last month after advancing 8.6% in December and losing 9.5% in November. Palladium plummeted 38% last year. The current DG spot price is up $8.50 an ounce to $967.00

Spot platinum dropped 2.6% last week to $900.60 an ounce after losing 2.3% Friday. Platinum fell 8% last month after rising 8.1% in December and falling 0.7% in November. Platinum dropped 6.8% in 2023. The DG spot price is currently up $4.70 an ounce to $905.30.

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