Gold futures are poised to settle above $1,400 an ounce for the fourth week after Federal Reserve Chairman Jerome Powell’s two days of testimony before Congress solidified expectations of a rate cut at the end of the month.
This morning’s Producer Price Index released by the U.S. Labor Department rose an expected 0.1% for June, following May increase of 0.1%. Gold dipped a tad at the news, then recovered.
Bullion had retreated Thursday as yields on 10-year Treasuries reached a one-month high, the dollar pared losses and equity indexes set records. The Dow Jones Industrial Average closed above 27,000 for the first time ever, while the Standard & Poor’s 500 Index closed at a new high just shy of 3,000.
August gold futures slipped 0.4% to settle at $1,406.70 an ounce Thursday on Comex, but they were up 0.5% in the first four days of the week, set to extending the rally. Currently, the August contract is at $1410.70, up $4.00.
Powell suggested Thursday that the Fed has room to ease monetary policy and may have kept it too tight. The U.S. economy is “in a very good place,” and the Fed wants “to use our tools to keep it there,” he said. Rate-cut speculation is partly behind gold’s rally to six-year highs.
The CME FedWatch Tool has kept the odds of a July 31 rate cut at 100% since the Federal Open Market Committee’s last meeting in June, but sentiment about the depth of the cut has fluctuated. This morning, the tool put the odds of a 50-basis-point cut at 22.4%, compared with just 1.8% two days earlier – before Powell’s testimony. The likelihood of a 25-basis-point reduction has fallen to 77.6% from 98.2% two days ago.
The U.S. core inflation rate posted the biggest gain in almost a year and a half, according to June data released Thursday, but that’s not expected to shift expectations of a rate cut. The weekly initial jobless claims report showed the number of Americans filing for unemployment benefits fell to a three-month low last week.
In his testimony Thursday, Powell said the relationship between unemployment and inflation has “become weaker and weaker and weaker” over the past 20 years.
Traders have turned to gold as a safe-haven asset in recent months amid fears of a tepid U.S. economy and a trade war with China. The standoff appeared to be getting new legs after U.S. President Donald Trump said it wasn’t keeping promises to buy American agricultural products. Investors will be looking to Chinese trade data due out Sunday to assess the trade war’s impact.
In other news, the London Bullion Market Association argued that gold shouldn’t be subject to tough new liquidity rules set to go into effect in the European Union in 2021 because trading in the metal is much more liquid than government or corporate bonds, Reuters reported.
Silver futures were little changed early Friday. They fell 0.5% Thursday on Comex but are up 1% in the first four days of the week. Currently, the Silver August Comex contracts are standing at $15.120, up $.018. Both spot platinum and spot palladium fell Thursday. Platinum was up 1.7% in the first four days of the week and is currently at $825.20 an ounce, while palladium was down 0.7% after soaring over $1,600 at mid-week and is currently at $1,565 an ounce
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