Gold drops on Treasurys

Gold drops on Treasurys, Fed

Gold drops early Friday on Treasurys yields, heading for a second consecutive weekly decline. The yellow metal clawed back some turf as investors bought the dip and digested the news that the Fed now wants to debate the December rate hike.

The Wall Street Journal reporting this morning that the Fed is pondering backing off the current pace of rate increases. Some Fed officials signal growing unease with using rate increases to battle inflation and are starting to worry about the risks of overtightening.

The yellow metal came under pressure as 10-year Treasury yields reached the highest level since June 2008 and the dollar index rose. Stronger yields and a stronger U.S. currency are typically bearish for gold, making the metal less attractive as an alternate investment. Higher interest rates are also bearish.

Front-month gold futures edged up 0.2% Thursday to settle at $1,636.80 an ounce on Comex, though the December contract declined 0.7% in the first four days of the week. Bullion fell 3.1% in September and 7.5% in the third quarter. The metal is down 10% this year.  

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.19% Thursday to 930.99 metric tons, Reuters reported. 

U.S. initial jobless claims fell to a three-week low last week, the Labor Department reported Thursday, indicating that the labor market remains tight and won’t influence Fed policymakers to slow the pace of their rate increases to rein in the highest inflation in more than 40 years. 

Investors are now betting there’s a 96.5% chance of a 75-basis-point rate increase at the next meeting of Fed policymakers in early November, with the remaining 3.5% projecting a 50-basis-point hike, according the CME FedWatch Tool. A month ago, just 70.1% of investors anticipated a 75-basis-point increase, with 29.2% predicting a 50-basis-point hike and the rest a 100 basis point increase. 

The Fed has raised interest rates by 300 basis points so far this year to 3% to 3.25%, following increases of basis points each in June, July and September. There are two more meetings left this calendar year.

Philadelphia Fed President Patrick Harker said Thursday that more increases will be needed “for a while” since the previous ones haven’t done much to check inflation. “Given our frankly disappointing lack of progress on curtailing inflation, I expect we will be well above 4% by the end of the year,” he said in New Jersey. 

The consumer price index surged 8.2% in September from a year earlier, according to a report released last week. So-called core CPI, the index excluding food and energy costs, increased 6.6% from a year earlier to the highest level since 1982, while it climbed 0.6% for a second month.

Front-month silver futures gained 1.8% Thursday to settle at $18.69 an ounce on Comex. The December contract increased 3.4% in the first four days of the week. Silver advanced 6.5% in September and fell 6.5% in the third quarter. It’s down 20% this year. The December contract is currently down $0.344 (-1.84%) an ounce to $18.345 and the DG spot price is $18.75.

Spot palladium rose 3.4% Thursday to $2,087.00 an ounce and is up 3.1% this week. Palladium rose 5.9% last month and 13% in the third quarter. It’s up 9% in 2022. The current DG spot price is down $89.10 an ounce to $2020.50.

Spot platinum advanced 3.8% Thursday to $925.20 an ounce and is up 2% so far this week. Platinum rose 2.6% in September. It fell 4% in the third quarter and is down 4.9% this year. Currently, the DG spot price is down $11.70 an ounce to $912.40.

Disclaimer: This editorial has been prepared by Dillon Gage Metals for information and thought-provoking purposes only and does not purport to predict or forecast actual results. This editorial opinion is not to be construed as investment advice or a recommendation regarding any particular security, commodity, or course of action. Opinions expressed herein cannot be attributable to Dillon Gage. Reasonable people may disagree about the events discussed or opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. It is not a solicitation or advice to make any exchange in commodities, securities, or other financial instruments. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisers with respect to these areas. By posting this editorial, you acknowledge, understand, and accept this disclaimer.