Gold Regains Ground On Economic Worries

Gold Regains Ground On Economic Worries

Gold regains ground on economic worries as recession fears outweigh a firmer dollar. The yellow metal briefly dipped as Fed Chair testified to Congress.

Fed Chairman Jerome Powell told congress this morning that the central bank is determined to reduce inflation. “At the Fed, we understand the hardship high inflation is causing. We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so,” the Fed chief told the Senate Banking Committee. “We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses.” DG spot gold slipped from $1,845 to $1,840 an ounce on the news, but quickly recovered.

The Federal Reserve announced its biggest rate increase since 1994 a week ago to combat the highest U.S. inflation in 40 years. While rate increases are typically bearish for gold, inflation is bullish, because gold is considered a haven against the higher cost of goods and services. This has kept gold rangebound. 

The global stock market continues to struggle. After a strong rebound on Tuesday, U.S. stocks all opened down Wednesday morning with the Dow Jones Industrial Average falling 329 points, or 1.1%, at the opening bell, while the S&P 500 fell nearly 1% and the Nasdaq slipped 0.8%.

August gold futures fell 0.1% Tuesday to settle at $1,838.80 an ounce on Comex. There was no settlement Monday for precious metals trading on Comex because of the Juneteenth U.S. holiday,  which closed the U.S. federal government, stock market and bond market. Front-month gold futures dropped 1.9% last week. Gold tumbled 3.3% in May, its worst month since September. It retreated 3.5% in 2021.  The August contract is up $4.10 (+0.22) an ounce to $1,842.90 and the DG spot price is $1,845.30.

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.16% Tuesday to 1,073.80 metric tons, Reuters reported.

Most economists and investors now expect Fed policymakers to announce a series of sizeable interest-rate increases through the end of the year. About 98.1% of investors now expect another 75-basis-point increase in July, according to the CME’s FedWatch Tool. None anticipated a move of that size a month ago. Last week’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. 

The more aggressive posture came after the release of the consumer price index report for May the week before, which indicated that inflation hadn’t peaked in March, as many economists had forecast. 

Investors also continue to fear an economic slowdown because of the high inflation rate. Economic uncertainty is typically bullish for gold, which is a haven asset. The yellow metal also continued to get some support from the pandemic and the ongoing war in Ukraine. 

September silver futures increased 0.8% Tuesday to settle at $21.85 an ounce on Comex. The front-month contract – which rolled to September last week – decreased 1.1% last 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 $0.318 (-1.46%) an ounce to $21.450 and the DG spot price is $21.53.

Spot palladium rose 3% Tuesday to $1,905.50 an ounce. It dropped 5.2% last 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 $25.20 an ounce to $1,882.50.

Spot platinum increased 0.8% Tuesday to $948.90 an ounce. It retreated 4.3% last week. It gained 2.3% last month and lost 9.4% last year. The DG spot price is currently down $11.00 an ounce to $937.50.


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