Gold pauses after another record high

Gold pauses after another record high

Gold pauses after hitting another record high early Wednesday amid increased haven demand because of geopolitical and economic uncertainty. Gold rose to $2,288.09/ounce early in the trading day, but has pulled a bit back on as U.S. 10-year bond yields hover near four-month peak.

The wars in Gaza and Ukraine are making some traders skittish. While the Federal Reserve is still widely expected to begin cutting interest rates in June – which would be bullish for gold as an alternate investment – some investors are also increasingly nervous that the central bank will delay its planned rate reductions because of high inflation. But that, too, is attracting gold buyers using the yellow metal as a hedge against inflation. 

Investors are awaiting Friday’s release of the closely watched U.S. monthly jobs report for March for further direction. Fed Chairman Jerome Powell said after the Fed’s policy announcement last month that a surprise increase in unemployment could spur the Fed to cut rates. 

Front-month gold futures rose 1.1% Tuesday to settle at $2,281.80 an ounce on Comex, and the most-active June contract gained 1.9% in the first two days of the week. Bullion increased 8.9% in March – the biggest monthly rise in more than three years – after dropping 0.6% in February and declining 0.2% in January. The metal rose 13% in 2023. The June contract is currently up $12.60 (+0.55%) an ounce to $2294.40 and the DG spot price is $2277.90.

About 94.0% of the investors tracked by the CME FedWatch Tool are betting that the Fed will keep rates unchanged in May, while 6.0% expect a 25 basis point cut. The central bank has raised interest rates by 5.25 percentage points since March 2022 in an effort to cut inflation, but kept rates unchanged at 5.25% to 5.50% at its meeting last month. Most investors are expecting a rate cut in June.

Some of the haven demand has been spurred by Ukrainian attacks on Russia’s oil infrastructure, along with Israeli warnings of an upcoming invasion of Rafah, in Gaza. 

In economic news, Fed policymakers reiterated Tuesday that they think it would “reasonable” to cut U.S. interest rates three times this year. 

U.S. manufacturing data unexpectedly rebounded in data released this week, and the increase in raw materials prices has heightened concern that inflation could resurge. 

The Fed’s favorite inflation measure, the personal consumption expenditure price index, came out Friday in line with expectations for February for so-called core PCE, which excludes volatile food and energy costs. Core PCE increased 2.8% year on year and was up 0.3% from a month earlier. Including food and energy costs, PCE increased 2.5% year on year and 0.3% month on month, compared with estimates for 2.5% and 0.4%, respectively. The Fed’s series of interest rate cuts has targeted 2% inflation. 

Front-month silver futures rose 3.4% Tuesday to settle at $25.92 an ounce on Comex, and the May contract advanced 4% in the first two days of the week. Silver gained 8.9% in March after losing 1.2% in February and falling 3.8% in January. It ticked up 0.2% in 2023. The May contract is currently up $0.742 (+2.86%) an ounce to $26.665 and the DG spot price is $26.67.

Spot palladium increased 0.2% Tuesday to $1,009.50 an ounce, but is down 1.8% so far this week. Palladium advanced 7.7% last month after falling 4.6% in February and tumbling 11% in January. Palladium plummeted 38% last year. Currently, the DG spot price is up $10.20 an ounce to $1021.00.

Spot platinum gained 2.4% Tuesday to $925.80 an ounce and is up 1.3% in the first two days of the week. Platinum rose 3.3% last month after decreasing 4.9% in February and falling 8% in January. Platinum dropped 6.8% in 2023. The DG spot price is currently up $11.30 an ounce to $938.60.

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