Gold Firms after wavering on Fed outlook

Gold Firms after wavering on Fed outlook

Gold firms after wavering on Fed outlook that raised U.S. interest rates to the highest level in 15 years and signaled that there are more rate hikes to come.

The yellow metal tumbled Thursday – after touching the highest level in more than five months just a few days before – as Fed raised rates for the seventh time this year on Wednesday to 4.25% to 4.5%. The central bank has boosted rates by 425 basis points this calendar year to tame 40-year highs in inflation. 

Fed policymakers indicated that they anticipated increasing the rate to 5% to 5.25% by the end of 2023. The interval for high rates was also longer than many investors had anticipated, triggering a selloff in the broader market. 

“We still have some ways to go,” Fed Chairman Jerome Powell said at a news conference following Wednesday’s rate decision. This week’s rate increase of 50 basis points was the smallest in some time. The Fed raised rates by 75 basis points each in June, July, September, and November. 

Front-month gold futures tumbled 1.7% Thursday to settle at $1,787.80 an ounce on Comex. The February contract dropped 1.3% in the first four days of the week. Bullion increased 7.3% in November, its first monthly rally since March. The metal is down 2.2% this year. The February contract is currently up $7.80 (+0.44%) an ounce to $1795.60 and the DG spot price is $1786.30.

Higher interest rates are typically bearish for gold, which becomes less attractive as an alternative investment. 

Investors tracked by the CME FedWatch Tool are betting there’s a 71.4% chance the Fed will boost interest rates by just 25 basis points at the policymakers’ next meeting on Feb. 1. The odds are 28.6% in favor of another 50 basis point hike.

The European Central Bank also raised rates by 50 basis points on Thursday, but said it would need to increase rates “significantly” going forward to combat inflation. The Bank of England also announced a 50 basis point increase and said the economy would require further tightening.

Front-month silver futures tumbled 3.4% Thursday to settle at $23.31 an ounce on Comex. The March contract dropped 1.7% in the first four days of the week. Silver increased 14% in November, its biggest monthly gain since December 2020. It’s down 0.2% this year. The March contract is currently down $0.065 (-0.28%) an ounce to $23.240 and the DG spot price is $23.06.

Spot palladium slid 6.1% Thursday to $1,816.00 an ounce and is down 8.4% so far this week. Palladium rose 0.3% last month after declining 15% in October. It’s down 5.2% in 2022. The current DG spot price is down $86.60 an ounce to $1747.00.

Spot platinum decreased 2.1% Thursday to $1,013.50 an ounce, and it retreated 1.8% in the first four days of the week. Platinum gained 11% in November, its best month since February 2021. It’s up 4.2% this year. Currently, the DG spot price is down $6.80 an ounce to $1006.40.

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