Gold peaks on nine-month high early Friday before backing off a bit on profit-taking, but still headed for a fifth consecutive weekly gain as traders priced in a slowdown in the Federal Reserve’s interest rate increases.
Higher interest rates are bearish for gold, so the prospect of smaller rate hikes is bolstering the precious metal. The rate-hike sentiment got a boost from Wednesday’s release of the U.S. producer price index for December, which showed that wholesale prices fell 0.5% last month. It was the latest signal that the Fed’s aggressive monetary policy is starting to impact high inflation.
Front-month gold futures rose 0.9% Thursday to settle at $1,923.90 an ounce on Comex, near the highest level in nine months. The February contract advanced 0.1% so far this week. U.S. financial markets were closed Monday for the Martin Luther King Jr. holiday. 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. The February contract is currently up $2.60 (+0.14%) an ounce to $1926.50 and the DG spot price is $1925.80.
The sharp drop in the PPI last month was bigger than estimates and the largest decrease on a monthly basis since April 2020. So-called core PPI, which excludes food and energy, rose 0.1%, in line with analysts’ estimates.
Wednesday’s inflation report added fuel to a rally that began last week when a report showed the U.S. consumer price index fell 0.1% in December from a month earlier. It was the biggest monthly decrease since the early days of the COVID-19 pandemic.
Investors tracked by the CME FedWatch Tool are now betting there’s a 95.7% chance the Fed will boost interest rates by just 25 basis points when policymakers’ next rate decision is released on Feb. 1, up from 70% a month ago. The remaining 4.3% 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.
U.S. weekly initial jobless claims unexpectedly fell last week, according to a report released Thursday. That suggests that the labor market is still tight, despite the Fed’s measures. That could still lend itself to a larger-than-anticipated rate hike.
Fed Vice Chair Lael Brainard said Thursday that rates would have to remain elevated for some time to continue to rein in inflation.
In addition to the Fed, investors are closely watching for headlines out of Davos, Switzerland, where policymakers, politicians, and celebrities are attending the World Economic Forum. The International Monetary Fund’s Kristalina Georgieva and the European Central Bank’s Christine Lagarde are scheduled to speak there Friday.
Front-month silver futures increased 0.9% Thursday to settle at $23.87 an ounce on Comex, though the March contract is down 2.1% so far this week. Silver rose 10% in December after increasing 14% in November, its biggest monthly gain since December 2020. It advanced 3% in 2022. The March contract is currently up $0.020 (+0.08%) an ounce to $23.890 and the DG spot price is $23.84.
Spot palladium gained 2.1% Thursday to $1,769.00 an ounce, though it’s down 2.2% this week. Palladium tumbled 4% in December after gaining 0.3% in November. It lost 5.7% in 2022. Currently, the DG spot price is down $41.50 an ounce to $1752.00
Spot platinum fell 0.4% Thursday to $1,041.80 an ounce and is down 2.7% this week. Platinum increased 3.4% last month after rising 11% in November, its best month since February 2021. It surged 10% in 2022. The current DG spot price is down $2.50 an ounce to $1040.60.
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