Gold heads for the best week since November, after the dollar weakened on the Federal Reserve’s new hawkish policy stance.
Weakness in the dollar is typically bullish for the precious metal because it makes gold more attractive to holders of other currencies. Treasury yields also dropped, further bolstering the yellow metal.
Fed policymakers on Wednesday said that they would speed up the timeline at which they would stop asset purchases begun to prop up the economy during the pandemic. In an effort to get a handle on skyrocketing inflation, the Fed also indicated that three interest rate increases would be likely in 2022. Rates are currently near zero.
The Bank of England went a step further Thursday by becoming the first major central bank to raise interest rates since the pandemic began.
While gold got a boost from the moves in the dollar and Treasury yields, higher rates can ultimately be bearish for gold because they make the precious metal less attractive as an alternate investment.
February gold futures rose 1.9% Thursday to settle at $1,798.20 an ounce on Comex and increased 0.8% in the first four days of the week. Before the Fed announcement, gold had settled within a roughly $25 range for about three weeks. Gold decreased 0.4% in November after advancing 1.5% in October. The yellow metal is down 5.1% so far in 2021. The February contract is up $9.50 (+0.53%) to $1,807.70 and the DG spot price is $1,807.70.
While the Fed and the Bank of England took more hawkish stances, the European Central Bank pledged further stimulus in a policy announcement Thursday, though it did cut pandemic bond buying. The Bank of Japan also scaled back pandemic-era funding Friday, but it’s expected to remain dovish on a rate increase.
Though central banks have pivoted to focusing on inflation over the job market, U.S. weekly initial jobless claims for last week came in higher than expected in a Labor Department report Thursday. Applications for new unemployment benefits, which dropped to their lowest level in more than half a century in the last report, reached 206,000, above analysts’ consensus estimate of 195,000.
The U.S. consumer price index, a closely watched barometer on inflation, surged to a 39-year high of 6.8% last month, according to a report released last week, further pressuring the Fed and other central banks to take steps to rein in runaway prices. Gold is a traditional hedge against inflation.
Markets also continued to grapple with what the omicron variant of the coronavirus will mean for the global economic recovery.
March silver futures increased 4.4% Thursday to settle at $22.49 an ounce on Comex, and the front-month contract gained 1.3% in the first four days of the week. Silver fell 4.7% in November after rising 8.6% in October. The metal is down 15% so far this year. Silver prices are tied to industrial demand. The March contract is currently up $0.090 (+0.40%) to $22.575 and the DG spot price is $22.60.
Meanwhile, palladium headed lower for the week amid the global shortage of semiconductor chips used in automobile production — though it erased most of its losses Thursday. The metal’s main use is in catalytic converters for gasoline-powered vehicles.
Spot palladium rallied 11% Thursday to $1,745.50 an ounce, though it’s down 1.2% so far this week. It plummeted 13% in November after rallying 4.3% in October. It’s down 29% so far in 2021. Currently, the DG spot price is up $4.40 an ounce to $947.30.
Spot platinum rose 4.2% Thursday to $944.60 an ounce, though it’s down 0.3% in the first four days of the week. The metal dropped 8.1% last month after rising 6% in October. It’s down 12% so far this year. The DG spot price is up $58.70 an ounce to $1,798.50, currently.
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