Gold reclaims ground near eight-week high

Gold reclaims ground near eight-week high

Gold reclaims ground near eight-week high buoyed by increasing expectations that the Federal Reserve is coming to the end of its interest rate hike cycle.

U.S. retail sales data for June, released Tuesday, was the latest economic report to bolster speculation that the Fed would pause or end its rate increases after the July meeting. The central bank is still widely expected to boost rates another 25 basis points at its meeting next week.  

Lower interest rates – or a pause in interest rates hikes – would be considered bullish for gold because the metal is less attractive to investors when rates go up. A stronger dollar makes gold a less attractive investment to holders of other currencies, putting pressure on the yellow metal.

August gold futures rose 1.3% Tuesday to settle at $1,980.80 an ounce on Comex and was up 0.8% in the first two days of the week. The front-month contract is rolling to December, which settled at $2,019.60 an ounce Tuesday. Bullion dropped 2.7% last month after retreating 0.9% in May and increasing 0.6% in April. The metal gained 5.7% in the first half of the year after falling $2.40 in 2022. The August contract is currently down $1.00 (-0.05%) an ounce to $1979.80 and the DG spot price is $1978.40.

U.S. retail sales rose for the third straight month in June, but the figure was less than economists had forecast, signaling that spending growth is slowing. Sales increased 0.2% last month, below the 0.5% analysts had anticipated. The data for May was revised up to 0.5% from 0.3% in last month’s report. 

Last week, the U.S. consumer price index data for June indicated that the economy shifted into disinflation. U.S. wholesale prices also rose less than expected in June, according to a separate report from the Labor Department.

These reports are all seen as signals that the Fed may be anticipating a pause or end to its rate hikes. The Fed has increased rates by 25 basis points three times this year following hikes of 50 basis points in December and 75 basis points each in June, July, September and November 2022 and smaller increases in March and May of last year. The rate hikes have totaled 5 percentage points since March 2022. The Fed held rates unchanged last month for the first time after 10 consecutive increases. 

About 99.8% of investors tracked by the CME FedWatch Tool are still betting that the Fed will raise its federal funds rate by 25 basis points to 5.25% to 5.50% at its July monetary policy meeting. Just 0.2% expect it to keep rates unchanged. But the vast majority of investors tracked by the tool are betting that it will hold at that rate for the rest of the year, at meetings in September, November and December. 

Other economic data due out this week include housing starts on Wednesday and weekly initial jobless claims and U.S. leading economic indicators on Thursday. 

September silver futures gained 1% Tuesday to settle at $25.26 an ounce on Comex. The most-active contract rallied 0.3% in the first two days of the week. Silver dropped 2.4% in June after decreasing 6.5% in May and gaining 4.4% in April. It retreated 4.2% in the first half of the year after rising 3% in 2022. The September contract is currently up $0.069 (+0.27%) an ounce to $25.325 and the DG spot price is $25.17.

Spot palladium rose 2.6% Tuesday to $1,340.50 an ounce and is up 3.2% so far this week. Palladium fell 9.5% in June after tumbling 9.3% in May and rising 2% in April. Palladium plummeted 31% in the first half of the year after losing 5.7% in 2022. Currently, the DG spot price is down $9.50 an ounce to $1332.00.

Spot platinum advanced 0.9% Tuesday to $991.90 an ounce and has rallied 1.4% this week. Platinum fell 9.3% in June after retreating 7.4% in May and adding 8.5% in April. Platinum dropped 15% in the first half of the year after surging 10% in 2022. The DG spot price is currently down $3.60 an ounce to $988.00.

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