Gold rebounds near one-week high in holiday trading after posting two consecutive weekly losses on signs that the Federal Reserve will hold interest rates elevated for a few more months. The yellw metal getting support from a weakened dollar and Middle East tensions.
Prices were hovering just above the $2,000-an-ounce threshold but could come under increased pressure from high interest rates. The U.S. producer price index came in hotter than expected for January on Friday, coming on the heels of a similar showing by the consumer price index earlier in the week. Both made it less likely that the Fed will cut rates in the next few months. Most investors now aren’t anticipating a rate cut in June.
Comex electronic trading on Monday won’t settle until Tuesday because of the U.S. Presidents Day holiday, which has shuttered government offices, banks and financial markets. The light trading may make prices more volatile.
Front-month gold futures fell 0.7% last week to settle at $2,024.10 an ounce on Comex, though the most-active April contract gained 0.5% Friday. Bullion declined 0.2% in January after gaining 0.7% in December and rising 3.2% in November. The metal rose 13% in 2023. The April contract is currently up $3.90 (+0.19%) an ounce to $2028.00 and the DG spot price is $2018.30.
Wholesale prices rose more than expected in January, in a further sign of persistent inflation. The PPI rose 0.3% in January, the biggest monthly move since August, according to data released Friday from the Labor Department. Economists had forecast a gain of 0.1% after PPI fell 0.2% in December. So-called core PPI, which excludes volatile food and energy prices, also came in above expectations, gaining 0.5% compared with estimates of a 0.1% gain.
So-called core CPI, the cost of goods excluding volatile food and energy prices, gained 0.4% in January and was up 3.9% from a year earlier, according to data from the Labor Department earlier in the week. That compares with economists’ forecasts for 0.3% and 3.7% respectively. Including food and energy, the CPI rose 0.3% for the month and 3.1% year on year, compared with estimates of 0.2% and 2.9% respectively.
But U.S. consumer sentiment increased for a third straight month in February, a sign of a resilient economy that the Fed may see as able to tolerate the high rates. Sentiment rose to the highest level since July 2021, according to the preliminary February reading from the University of Michigan.
Higher interest rates are typically considered bearish for gold, so cuts would be supportive for the precious metal. But holding rates high for a longer period of time would be bearish.
About 89.5% of the investors tracked by the CME FedWatch Tool are betting that the Fed will keep rates unchanged next month, while 10.5% expect a 25 basis point cut. A month ago, more than 55% of investors were anticipating a cut in March. A majority of investors tracked by the tool now also anticipate the Fed will hold rates steady at the following policy meeting in May, too. Most are now looking to June for a rate 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% earlier this month.
Front-month silver futures gained 3.9% last week to $23.48 an ounce on Comex after the March contract advanced 2.3% Friday. Silver fell 3.8% in January after dropping 6.1% in December and advancing 12% in November. It ticked up 0.2% in 2023. The March contract is currently down $0.365 (-1.55%) an ounce to $23.110 and the DG spot price is $23.09.
Spot palladium rose 9.2% last week to $960.00 an ounce, though it slipped 1% Friday. Palladium tumbled 11% last month after advancing 8.6% in December and losing 9.5% in November. Palladium plummeted 38% last year. The current DG spot price is down $10.30 an ounce to $952.50.
Spot platinum increased 3.6% last week to $912.10 an ounce after gaining 0.7% Friday. Platinum fell 8% last month after rising 8.1% in December and falling 0.7% in November. Platinum dropped 6.8% in 2023. The DG spot price is currently down $8.60 an ounce to $904.90.
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