Gold holds above $2,000, but weekly drop likely

Gold holds above $2,000, but weekly drop likely

Gold holds its ground above the $2,000 mark, but a weekly drop for the yellow metal is likely as it heads for its worst week in more than a month after Federal Reserve officials signaled that rate cuts might not happen as soon as the market had anticipated.

Atlanta Fed President Raphael Bostic said Thursday that he doesn’t expect the central bank to start cutting rates until the third quarter. That’s sooner than his previous forecast of the fourth quarter, but much later than the markets had anticipated.

“My outlook right now is for our first cut to be sometime in the third quarter this year, and we’ll just have to see how the data progress,” Bostic said Thursday. If inflation falls “well faster” than he expects, he’d be open to an earlier cut, he said. Investors hadn’t expected a cut this month but were anticipating one in March. Bets tracked by the CME FedWatch Tool are now about even on a March cut, but still showing that one will be in place by May.

Separately, haven demand triggered by geopolitical uncertainty related to the expanding conflict in the Middle East has kept gold futures above the $2,000-an-ounce threshold. 

Front-month gold futures rose 0.8% Thursday to settle at $2,021.60 an ounce on Comex. There was no settlement Monday because of the Martin Luther King Jr. Day holiday in the U.S. The February contract fell 1.5% so far this week. Bullion gained 0.7% last month after rising 3.2% in November and increasing 6.9% in October. The metal rose 13% in 2023. The February contract is currently up $14.10 (+0.70%) an ounce to $2035.70 and the DG spot price is $2033.70.

Investors are awaiting preliminary data on consumer sentiment in January, due out Friday, for further direction. Chicago Fed President Austan Goolsbee, San Francisco Fed Mary Daly and Fed Vice Chair for Supervision Michael Barr are also all scheduled to speak Friday, and their comments will be closely followed for further signs of the Fed’s next moves. 

A series of recent reports signaled that the economy remains resilient and able to handle high interest rates, squelching some speculation about imminent rate cuts. The likelihood that rates will stay high for some time strengthened the dollar and Treasury yields, pressuring gold. 

Thursday, U.S. weekly initial jobless claims came in at the lowest level since September 2022, indicating that the labor market remains strong. The Fed closely watches economic reports, particularly on inflation and labor market conditions, when determining monetary policy. Wednesday, the Fed’s Beige Book report from the 12 regional banks on the state of the economy showed resilient consumer spending, though a weaker labor market. 

The CME FedWatch Tool shows that 97.4% of the investors it tracks are betting that the Fed will keep its federal funds rate unchanged at 5.25% to 5.50% in January, while 2.6% are expecting a 25 basis point cut. The Fed has raised interest rates by 5.25 percentage points since March 2022 to curb inflation. High interest rates are typically bearish for gold, but rate cuts would be bullish.

Front-month silver futures added 0.6% Thursday to $22.81 an ounce on Comex. The March contract has fallen 2.2% so far this week. Silver dropped 6.1% in December after advancing 12% in November and increasing 2.2% in October. It ticked up 0.2% in 2023. The March contract is currently up $0.013 (+0.06%) an ounce to $22.820 and the DG spot price is $22.73.

Spot palladium rallied 2.4% Thursday to $958.50 but is down 0.8% so far this week. Palladium advanced 8.6% in December after losing 9.5% in November and dropping 10% in October. Palladium plummeted 38% last year. Currently, the DG spot price is down $5.00 an ounce to $951.00.

Spot platinum gained 0.6% Thursday to $912.90 an ounce. It’s down 2.2% so far this week. Platinum rose 8.1% in December after falling 0.7% in November and gaining 3.5% in October. Platinum dropped 6.8% in 2023.The DG spot price is currently up $2.30 an ounce to $913.70.

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