Gold eases on Hawkish Fed, firmer dollar

Gold eases on Hawkish Fed, firmer dollar

Gold eases below $2,000 an ounce early Wednesday on hawkish Fed comments and a firmer dollar. 

On Tuesday, several Fed Presidents threw cold water on the hopes of rate cuts. Chicago Fed President Goolsbee said it was premature to discuss such cuts, while Atlanta Fed President Bostic said the Fed would need to stay “super strong” in fighting inflation even if the unemployment rate starts to rise later in the year.

The yellow metal ticked down further this morning on the release of U.S. housing data for April. Housing starts climbed 2.2% last month, driven by an increase in multi-family construction, even as building permits declined. Economists expected starts to decrease 1.4% on month to 1.40 million.

U.S. President Joe Biden and congressional leaders made optimistic noises Tuesday about the state of their talks to boost the U.S. debt ceiling and avoid sending the nation’s $31.4 trillion debt into default. While House Speaker Kevin McCarthy said the sides are still “far apart,” he said “it is possible to get a deal by the end of the week.” 

The standoff over the debt ceiling have attracted some haven investors to gold, putting a floor under prices. But the stronger dollar has pressured the precious metal. 

June gold futures fell 1.5% Tuesday to settle at $1,993.00 an ounce on Comex, and the front-month contract decreased 1.3% in the first two days of the week. Bullion increased 0.6% in April after gaining 8.1% in March. The metal fell $2.40 in 2022. The June contract is currently down $8.40 (-0.42%) an ounce to $1984.60 and the DG spot price is $1980.00.

Higher interest rates are typically bearish for gold, because they make the yellow metal less attractive as an alternate investment, but a pause or an end to the rate hikes would be bullish.

About 78.6% of investors tracked by the CME FedWatch Tool are betting that the Fed will keep interest rates unchanged at the next meeting in June, while 21.4% expect another 25 basis point rate hike. The Fed raised rates by another 25 basis points earlier this month. 

The Fed has raised rates by 25 basis points three times this year following rate hikes of 50 basis points in December and 75 basis points each in June, July, September and November 2022. The federal funds rate is currently at 5.00% to 5.25%. 

Inflation slowed to the lowest rate in two years in consumer price index and producer price index data released last week, but it’s still higher than the Fed’s target. Fed policymakers have said that they consider labor market conditions and inflation data when making monetary policy decisions. 

July silver futures dropped 1.6% Tuesday to settle at $23.89 an ounce on Comex, and the front-month contract fell 1.1% in the first two days of the week. Silver gained 4.4% in April after increasing 15% in March. It rose 3% in 2022. The July contract is currently up $0.042 (+0.18%) an ounce to $23.935 and the DG spot price is $23.73.

Spot palladium decreased 2.4% Tuesday to $1,519.50 an ounce and dropped 1.4% so far this week. Palladium rose 2% last month after rising 3.7% in March. Palladium lost 5.7% in 2022. Currently, the DG spot price is down $14.10 an ounce to $1510.50.

Spot platinum lost 0.5% Tuesday to $1,067.50 an ounce, but gained 0.3% this week. Platinum added 8.5% in April after increasing 3.7% in March. Platinum surged 10% in 2022. The DG spot price is currently up $15.90 an ounce to $1081.70.

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