Gold poised for weekly drop, slipping early Friday, coming under pressure as the dollar and Treasury yields strengthened on the back of the biggest Federal Reserve rate increase since 1994.
Fed policymakers announced a 75-basis-point increase Wednesday to combat the highest U.S. inflation in 40 years. The rate hike was bigger than the 50-basis-point increase the Fed had signaled a few weeks ago, with the central bank becoming more aggressive after last week’s report of the consumer price index for May. The CPI report indicated that inflation hadn’t peaked in March, as many economists had forecast.
About 85% of investors now expect another 75-basis-point increase in July, according to the CME’s FedWatch Tool, compared with 0.6% who anticipated a move of that size a week ago. Wednesday’s decision was the third rate hike of 2022. The 50-basis-point increase in May was the largest in 22 years at that time. Rate increases are typically considered bearish for gold.
August gold futures rose 1.7% Thursday to settle at $1,849.90 an ounce on Comex, and the most-active contract slipped 1.4% in the first four days of the week. Gold dropped 3.3% in May, its worst month since September. It retreated 3.5% in 2021. The August contract is currently down $4.00 (-0.22%) an ounce to $1,845.90 and the DG spot price is $1,843.70.
The metal had some support from risk-off traders as fears of a coming recession mounted. The S&P 500 Index tumbled 3.3% Thursday to the lowest level since December 2020. But U.S. President Joe Biden said in an interview with the Associated Press on Thursday that a recession isn’t inevitable.
Gold also had support from uncertainty over the pandemic and the ongoing war in Ukraine.
But most investors’ attention remained fixed on the economy and crippling inflation. The Fed’s favorite inflation measure – the personal consumption price index — slowed to 6.3% in April from a 40-year high of 6.6% in March, data released at the end of May showed. It was the first decline in the personal consumption index in a year and a half.
September silver futures increased 2.2% Thursday to settle at $21.98 an ounce on Comex, and the front-month contract – which rolled to September this week – is up 0.2% so far this week. Silver dropped 6.1% in May after losing 8.2% in April. It retreated 12% in 2021. Silver prices are tied to industrial demand. The July contract is currently down $0.195 (-0.89%) an ounce to $21.690 and the DG spot price is $21.70.
Spot palladium rose 1.2% Thursday to $1,914.50 an ounce, but is down 1.9% in the first four days of this week. The metal lost 14% in May, the biggest monthly decline since September. It retreated 22% in 2021. Currently, the DG spot price is off $40.30 an ounce to $1,868.50.
Spot platinum gained 2.4% Thursday to $963.00 an ounce, and it tumbled 2.1% so far this week. It gained 2.3% last month and lost 9.4% last year. The DG spot price is down $15.70 an ounce to $947.40.
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