Gold Jumps on Inflation Report

Gold jumps on inflation report

Gold jumps more than $16 an ounce on soft inflation report after regaining ground above $1900. The yellow metal had fallen below that benchmark early Wednesday as the dollar strengthened, but the yellow metal is holding on amid anticipation that the Federal Reserve will slow the pace of its upcoming interest rate increases. The new inflation data strengthens that anticipation.

Wholesale prices dropped sharply in December, energizing the belief that inflation is starting to ease, even though it is still high. The producer price index (PPI) fell 0.5% for the month, per the Labor Department. Economists had forecast a 0.1% decline.

Investors now look to the release of the Fed’s Beige Book report on the economic conditions in all 12 of the central bank’s regions which is due out Wednesday afternoon.

Front-month gold futures fell 0.6% Tuesday to settle at $1,909.90 an ounce on Comex, just under the highest level in nine months. U.S. financial markets were closed Monday for the Martin Luther King Jr. holiday. The February contract rose 2.8% last week. Bullion gained 3.8% in December after increasing 7.3% in November. It was the first two-month rally since March. The metal fell $2.40 in 2022. Currently, the February contract is up $13.8 (+0.72%) an ounce to $1923.70 and the DG spot price is $1925.90.

Gold rallied last week after a report showed that U.S. consumer price index fell 0.1% in December from a month earlier, a sign that the Fed rate increases are starting to have an impact on the economy. It was the biggest monthly decrease since the early days of the COVID-19 pandemic. 

U.S. weekly initial jobless claims come out Thursday, and various Fed officials will be speaking. Investors will watch both closely for signals about the Fed’s next moves. Headlines out of Davos, Switzerland, where policymakers, politicians, and celebrities are attending the World Economic Forum, could also move markets. 

Fed officials Raphael Bostic, Lorie Logan, and Patrick Harker are scheduled to speak Wednesday, followed by Susan Collins and John Williams on Thursday. In Davos, the International Monetary Fund’s Kristalina Georgieva and the European Central Bank’s Christine Lagarde are scheduled for Friday. 

Investors tracked by the CME FedWatch Tool are now betting there’s a 95.3% chance the Fed will boost interest rates by just 25 basis points when policymakers’ next rate decision is released on Feb. 1, up from 76.7% a week ago. The remaining 4.7% of investors are anticipating another 50 basis point hike next month. 

The Fed raised rates by 50 basis points in December and by 75 basis points each in June, July, September and November. Rates went up by 425 basis points in 2022 to 4.25% to 4.5%, the highest level in 15 years. 

The Bank of Japan kept its key rates unchanged in a rate decision announced Wednesday.

Front-month silver futures dropped 1.6% Tuesday to settle at $23.98 an ounce on Comex, with the March contract erasing all of last week’s gains. Silver rose 10% in December after increasing 14% in November, its biggest monthly gain since December 2020. It advanced by 3% in 2022. The March contract is currently up $0.277 (+1.15%) an ounce to $24.345 and the DG spot price is $24.33.

Spot palladium decreased 2.5% Tuesday to $1,763.00 an ounce. Palladium tumbled 4% in December after gaining 0.3% in November. It lost 5.7% in 2022. Currently, the DG spot price is up $56.00 an ounce to $1815.00.

Spot platinum fell 2.3% Tuesday to $1,046.70 an ounce. Platinum increased 3.4% last month after rising 11% in November, its best month since February 2021. It surged 10% in 2022. The DG spot price is currently up $36.60 an ounce to $1083.60.

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