Gold near one-week low early Wednesday, extending Tuesday’s losses, after Federal Reserve Chairman Jerome Powell told Congress that interest rates are “likely to be higher” than previously anticipated. The rate hike concerns were reinforced by this morning’s employment data.
The yellow metal ticked down on the positive jobs numbers. February’s private payrolls jumped by 242,000 solidly beating the estimate for 205,000 and well above January’s 119,000 per the ADP report. Next up, the official monthly jobs report from the Labor Department on Friday, which will also be closely watched because the state of the labor market is one of the things the Fed assesses when making rate decisions.
Chairman Powell’s comments, which bolstered speculation of a bigger interest rate hike at the Fed’s next meeting later this month, spurred a selloff in equities and boosted in the dollar, which pressured precious metals. Interest rate increases are considered bearish for gold because they make the metal less attractive as an alternate investment.
Front-month gold futures fell 1.9% Tuesday to settle at $1,820.00 an ounce on Comex. The April contract was unchanged Monday. Bullion dropped 5.6% last month, its worst performance since June 2021. It increased 6.5% in January and gained 3.8% in December. The metal fell $2.40 in 2022. The April contract has currently ticked up a bit, $0.4 (+0.02%) an ounce, to $1820.40 and the DG spot price is $1821.10.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said in prepared remarks before testimony Tuesday to a Senate subcommittee. He is scheduled to testify before a House committee Wednesday, with both appearances part of his biannual Humphrey Hawkins report on monetary policy. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
Investors tracked by the CME FedWatch Tool increased their bets that the Fed will boost rates by 50 basis points at policymakers’ next meeting March 22. The tool shows 72% of investors expecting a 50-basis-point hike, with the remaining 28% betting on the Fed to raise rates by 25 basis points. This is a reversal from the day before when 68.6% of investors were betting on a 25-basis-point increase, with just 31.4% anticipating a 50-basis-point one.
The Fed had previously indicated it was likely to raise interest rates well above 5% from their current 4.50% to 4.75% level, but the comments triggered speculation of a move to 6%.
The Fed raised rates by 25 basis points Feb. 1 following rate hikes of 50 basis points in December and 75 basis points each in June, July, September and November to try to rein in skyrocketing inflation. The Fed’s favorite inflation measure, the U.S. personal consumption expenditures price index, unexpectedly accelerated in January.
Silver May futures decreased 4.4% Tuesday to settle at $20.20 an ounce on Comex, and the front-month contract retreated 4.9% in the first two days of the week. Silver retreated 12% last month after falling 0.8% in January and rising 10% in December. It advanced 3% in 2022. The May contract is currently down $0.024 (-0.12%) an ounce to $20.175 and the DG spot price is $20.16.
Spot palladium dropped 3.8% Tuesday to $1,403.50 an ounce and is down 4.7% this week. Palladium plummeted 14% in February after dropping 7.4% in January and retreating 4% in December. It lost 5.7% in 2022. The current DG spot price is up $13.90 an ounce to $1424.50.
Spot platinum retreated 4.5% Tuesday to $937.90 an ounce and is down 4.6% in the first two days of the week. Platinum retreated 5.9% in February after falling 4.3% in January and gaining 3.4% in December. It surged 10% in 2022. Currently, the DG spot price is up $2.90 an ounce to $945.20.
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