Gold heads for second weekly drop on inflation data

Gold heads for second weekly drop on inflation data

Gold heads for second weekly drop on this morning’s inflation data, following a series of economic reports that have investors rethinking the timeframe of the Federal Reserve’s expected interest rate decreases. The DG spot price dropped just below the key psychological $2000 an ounce level on the inflation report.

The Labor Department reported Friday morning that the producer price index, which measures prices received by producers of domestic producers for goods and services, rose 0.3% for January, the biggest shift since August. Economists surveyed by Dow Jones had forecast an increase of just 0.1%.

Earlier this week, the consumer price index came in hotter than expected for last month. Higher interest rates are typically considered bearish for gold, so cuts would be supportive for the precious metal. But holding rates high for a longer period of time would be bearish. 

Front-month gold futures rose 0.5% Thursday to settle at $2,014.90 an ounce on Comex, and the most-active April contract dropped 1.2% in the first four days of the week. Bullion declined 0.2% in January after gaining 0.7% in December and rising 3.2% in November. The metal rose 13% in 2023. The April contract is currently down $2.00 (-0.10%) an ounce to $2012.10 and the DG spot price is $1999.80.

Atlanta Fed President Raphael Bostic said Thursday that there’s no rush to cut interest rates and reiterated that the Fed wants the interest rate to sustainably hit the central bank’s 2% target. 

“The evidence from data, our surveys, and our outreach says that victory is not clearly in hand, and leaves me not yet comfortable that inflation is inexorably declining to our 2% objective,” Bostic said at a speech in New York Thursday. “That may be true for some time, even if the January CPI report turns out to be an aberration.”

So-called core CPI, the cost of goods excluding volatile food and energy prices, gained 0.4% in January and was up 3.9% from a year earlier, according to data from the Labor Department. That compares with economists’ forecasts for 0.3% and 3.7% respectively. Including food and energy, the CPI rose 0.3% for the month and 3.1% year on year, compared with estimates of 0.2% and 2.9% respectively. 

About 91.5% of the investors tracked by the CME FedWatch Tool are betting that the Fed will keep rates unchanged next month, while 8.5% expect a 25 basis point cut. A month ago, more than 65% of investors were anticipating a cut in March. A majority of investors tracked by the tool now also anticipate the Fed will hold rates steady at the following policy meeting in May. Most are now looking to June for a rate cut.

The central bank has raised interest rates by 5.25 percentage points since March 2022 in an effort to cut inflation, but kept rates unchanged at 5.25% to 5.50% earlier this month. 

Front-month silver futures gained 2.5% Thursday to $22.95 an ounce on Comex, and the March contract advanced 1.6% in the first four days of the week. Silver fell 3.8% in January after dropping 6.1% in December and advancing 12% in November. It ticked up 0.2% in 2023. The March contract is currently up $0.144 (+0.63%) an ounce to $23.095 and the DG spot price is $22.96.

Spot palladium rose 1.9% Thursday to $969.50 an ounce and has surged 10% so far this week. Palladium tumbled 11% last month after advancing 8.6% in December and losing 9.5% in November. Palladium plummeted 38% last year. The current DG spot price is down $2.30 an ounce to $960.50

Spot platinum increased 0.8% Thursday to $906.20 an ounce and gained 2.9% so far this week. Platinum fell 8% last month after rising 8.1% in December and falling 0.7% in November. Platinum dropped 6.8% in 2023. The DG spot price is currently down $2.10 an ounce to $903.10.

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