Gold gains on a weaker dollar Wednesday and traded near a record ahead of the Fed’s rate decision in the afternoon.
Investors have been increasingly anticipating a 50 basis point cut over the past week or two after previously expecting 25 basis point reduction. Interest rate cuts are typically considered bullish for gold, which becomes a more attractive alternate investment when rates go down.
In addition to the monetary policy decision, market watchers will mine the central bank’s statement and comments following the meeting by Fed Chairman Jerome Powell for indicators for the future, including whether there will be additional cuts this year.
Most investors tracked by the CME FedWatch Tool expect rates to drop to 4.00% to 4.25% or lower by the end of 2024. The Fed has kept interest rates at 5.25% to 5.50% for a year after raising them by 5.25 percentage points since March 2022 to rein in inflation. About 61% of investors tracked by the tool currently expect a 50 basis point cut to 5.00% to 5.25% on Wednesday, while the rest are betting on a 25 basis point cut to 4.75% to 5.00%.
Front-month gold futures fell 0.6% Tuesday to settle at $2,592.40 an ounce on Comex. The most-active December contract lost 0.7% in the first two days of the week. Bullion advanced 2.2% in August after increasing 5.7% in July, its biggest monthly gain since March. Gold fell 0.3% in June. The metal rose 13% in 2023. The December contract is currently up $8.20 (+0.32%) an ounce to $2600.60 and the DG spot price is $2572.20.
Stocks also traded near all-time highs Tuesday ahead of the Fed rate decision after U.S. retail sales for August beat expectations.
The Fed has said it closely looks at both inflation and labor market data when crafting monetary policy. Last week, consumer price index data for August showed that annual inflation had slowed to the lowest level since early 2021.
Goldman Sachs earlier this week reiterated its bullish outlook on gold prices amid the rate cuts, with a price target of $2,700 an ounce by early 2025.
In physical news, Barrick Gold suspended operations at its Porgera gold mine in Papua New Guinea after regional violence killed at least 20 people.
Front-month silver futures decreased 0.5% Tuesday to $30.98 an ounce on Comex. The December contract slipped 0.3% in the first two days of the week. Silver gained 0.7% last month after dropping 2.1% in July and falling 2.9% in June. It ticked up 0.2% in 2023. The December contract is currently down $0.104 (-0.34%) an ounce to $30.875 and the DG spot price is $30.47.
Spot palladium rose 3.2% Tuesday to $1,119.50 an ounce and is up 3.7% so far this week. The metal rallied 17% last week on short covering of other metals after Russian President Vladimir Putin said that Moscow should consider limiting some metals exports to the West. Palladium wasn’t named. Palladium increased 3.2% last month after decreasing 4.3% in July and gaining 8.1% in June. Palladium plummeted 38% last year. Currently, the DG spot price is down $26.60 an ounce to $1080.50.
Spot platinum slipped 0.2% Tuesday to $987.10 an ounce. It fell 1.7% in the first two days of the week. Platinum slid 5.2% in August after losing 2.1% in July and falling 3.7% in June. Platinum dropped 6.8% in 2023. The DG spot price is currently down $9.50 an ounce to $976.30.
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