Gold drops early Wednesday on rate-hike speculation and a strengthening dollar as new sales data impacts the odds that the Federal Reserve would continue increasing interest rates to combat rising inflation.
January retail sales boosted beyond expectations. Despite rising inflation pressures, advance retail sales show a 3% increase, compared with the expected 1.9%, per the Commerce Department. The report energized the belief that the Fed would stick to the advanced interest rate schedule.
Inflation climbed 0.5% in January, the most in three months, according to the consumer price index report, released Tuesday by the Bureau of Labor Statistics. It was up 6.4% from a year earlier. The so-called core CPI, which excludes food and energy, increased 0.4% and was up 5.6% from a year earlier. The year-on-year measures were higher than economists had forecast.
Interest rate hikes are considered bearish for gold, because they make the metal less attractive as an alternate investment. The gains in the dollar also pressured gold early Wednesday.
Front-month gold futures rose 0.1% Tuesday to settle at $1,865.40 an ounce on Comex, though the April contract slipped 0.5% in the first two 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. The April contract is currently down $17.8 (-0.95%) an ounce to $1847.60 and the DG spot price is $1835.00.
Dallas Fed President Lorie Logan said Tuesday after the CPI report was released that the central bank may need to raise interest rates even more than they expected to rein in inflation.
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.
“I anticipate we will need to continue gradually raising the fed funds rate until we see convincing evidence that inflation is on track to return to our 2% target in a sustainable and timely way,” Logan said.
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 89.3% of investors anticipating a 25-basis-point hike, with the remaining 10.7% expecting the Fed to raise rates by 50 basis points.
Investors will be watching for additional economic reports this week, including weekly initial jobless claims Thursday and the index of leading economic indicators Friday.
Front-month silver futures edged up 0.1% Tuesday to settle at $21.87 an ounce on Comex, though the March contract retreated 0.9% in the first two 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 $0.288 (-1.32%) an ounce to $21.585 and the DG spot price is $21.58.
Spot palladium fell 3.8% Tuesday to $1,523.00 an ounce. It’s down 2.3% 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 $37.70 an ounce to $1463.50.
Spot platinum decreased 2.4% Tuesday to $943.00 an ounce and fell 1.4% in the first two 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 $15.50 an ounce to $928.70.
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