Gold drops early Friday headed for a third consecutive weekly drop on Fed sentiment, while the dollar boosted to a six-week high amid increasing speculation that aggressive Federal Reserve interest rate hikes will continue in the face of rising inflation.
Wholesale costs rose more than expected in January, topping analysts’ biggest growth estimate. The producer price index rose 0.7% last month, the largest one-month increase since June, according to data released Thursday by the Bureau of Labor Statistics. The figure was up 6% from a year earlier. The report came out two days after the consumer price index, which increased by 0.5% in January, the most in three months and was up 6.4% from a year earlier.
Both inflation reports bolstered investor sentiment that rate hikes aren’t winding down and may continue longer – and be larger – than previously expected. Interest rate increases are considered bearish for gold because they make the metal less attractive as an alternate investment. Gold also came under pressure as the U.S. dollar index climbed to a six-week high.
Front-month gold futures rose 0.4% Thursday to settle at $1,851.80 an ounce on Comex, rebounding from one-month lows. The April contract slipped 1.2% in the first four days of the week. Bullion increased 6.5% in January after gaining 3.8% in December and increasing 7.3% in November. It was the longest consecutive monthly rally since July 2020. The metal fell $2.40 in 2022. Currently, the April contract is down $14.5 (-0.78%) an ounce to $1837.30 and the DG spot price is $1828.10.
The Fed raised rates by 25 basis points earlier this month to 4.50% to 4.75% and has been expected to take them above 5% this year. The February move followed rate hikes of 50 basis points in December and 75 basis points each in June, July, September and November.
Fewer investors tracked by the CME FedWatch Tool are betting that the Fed will boost rates by another 25 basis points in March, with more now banking on a larger hike. The tool shows 79.0% of investors anticipating a 25-basis-point hike, with the remaining 21% expecting the Fed to raise rates by 50 basis points. A week ago, 90.8% of those tracked were expecting a 25 basis point increase.
In other economic news Thursday, U.S. weekly initial jobless claims unexpectedly fell last week, indicating that the labor market remains tight even amid the Fed’s actions.
Front-month silver futures gained 0.6% Thursday to settle at $21.71 an ounce on Comex, though the March contract retreated 1.7% in the first four days of the week. Silver fell 0.9% in January after rising 10% in December and increasing 14% in November. It advanced 3% in 2022. The March contract is currently down $0.425 (-1.96%) an ounce to $21.285 and the DG spot price is $21.35.
Spot palladium rallied 4.5% Thursday to $1,555.00 an ounce. It’s down 0.3% so far this week. Palladium dropped 7.5% in January after retreating 4% in December. It lost 5.7% in 2022. Currently, the DG spot price is down $64.20 an ounce to $1496.50.
Spot platinum increased 1.1% Thursday to $935.70 an ounce and fell 2.2% in the first four days of the week. Platinum retreated 4.3% in January after increasing 3.4% in December and rising 11% in November. It surged 10% in 2022. The DG spot price is currently down $15.20 an ounce to $922.80.
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