Gold heads for second weekly drop

Gold heads for second weekly drop

Gold flat this morning as it heads for second weekly drop as investors anticipated further Federal Reserve rate increases to combat inflation amid signs that the labor market and the economy aren’t suffering from the hikes.

The Fed raised rates by 25 basis points last week to 4.50% to 4.75% and is expected to take them above 5% this year. The February move followed rate hikes of 50 basis points in December and 75 basis points each in June, July, September, and November. Smaller rate hikes – and cuts – are seen as bullish for gold, while larger hikes are bearish. That’s because higher rates diminish gold’s attractiveness as a haven asset.

Front-month gold futures fell 0.7% Thursday to settle at $1,878.50 an ounce on Comex, and the April contract is up 0.1% so far this week. Bullion increased 6.5% in January after gaining 3.8% in December and increasing 7.3% in November. It was the longest consecutive monthly rally since July 2020. The metal fell $2.40 in 2022. The April contract is slightly down currently by $0.8 (-0.04%) an ounce to $1877.70 while the DG spot price is $1867.80.

Fed Chairman Jerome Powell and other central bank officials indicated this week that further rate hikes were necessary, particularly after last week’s January U.S. jobs report came in better than expected. 

But weekly U.S. initial jobless claims for last week increased for the first time in six weeks, data released Thursday showed. New applications for unemployment benefits rose 13,000 to 196,000 in the week ended Feb. 4, more than the 190,000 forecast by analysts. The figure was still at a historic low, however. 

Fed Governor Christopher Waller and Philadelphia Fed President Patrick Harker are scheduled to speak Friday. Investors will also be closely watching next week’s release of the January consumer price index for further direction. 

Most investors tracked by the CME FedWatch Tool are betting that the Fed will boost rates by another 25 basis points in March. The tool shows 90.8% of investors anticipating a 25-basis-point hike, with the remaining 9.2% expecting the Fed to raise rates by 50 basis points to 5.00% to 5.25%. 

Front-month silver futures dropped 1.2% Thursday to settle at $22.14 an ounce on Comex, and the March contract retreated 1.2% in the first four days of the week. Silver fell 0.9% in January after rising 10% in December and increasing 14% in November. It advanced 3% in 2022. The March contract is currently up $0.007 (+0.03%) an ounce to $22.150 and the DG spot price is $22.22.

Spot palladium fell 1.1% Thursday to $1,648.00 an ounce but is up 0.5% so far this week. Palladium dropped 7.5% in January after tumbling 4% in December. It lost 5.7% in 2022. The current DG spot price is down $76.70 an ounce to $1576.00.

Spot platinum decreased 2.1% Thursday to $966.60 an ounce and is down 1.4% in the first four days of the week. Platinum retreated 4.3% in January after increasing 3.4% in December and rising 11% in November. It surged 10% in 2022. The DG spot price is currently slightly up $2.90 an ounce to $971.10.

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