Gold rises after inflation report

Gold rises after inflation report

Gold rises after Thursday’s inflation report, topping a nine-month high over $1900 an ounce early Friday, heading for a weekly gain, as investors anticipated that the Federal Reserve is likely to slow the pace of its interest rate increases.

U.S. inflation fell 0.1% in December from a month earlier, in line with economists’ expectations and the biggest decrease since the early days of the COVID-19 pandemic, according to consumer price index data released Thursday. 

The report indicates that the effects of the Fed’s aggressive monetary policy to rein in runaway inflation are starting to be felt and the central bank may opt for smaller rate hikes this year. Higher rates are typically bearish for gold because they make it less attractive as an investment asset. 

Front-month gold futures rose 1.1% Thursday to settle at $1,898.80 an ounce on Comex. The February contract advanced 1.6% in the first four days of the week. 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 $11.5 (+0.61%) an ounce to $1910.30 and the DG spot price is $1912.10.

The last time the CPI was lower than the month before was in May 2020. Year-on-year prices also cooled, slowing to 6.5% in December from 7.1% in November. 

The inflation report also pressured the dollar, which was on track for its worst week since November. A weaker dollar makes gold a more affordable investment for holders of other currencies. While gold has also traditionally been used as a hedge against high inflation, it has taken a backseat to the dollar and interest rates over the past few years. 

Investors tracked by the CME FedWatch Tool are now betting there’s a 93.3% chance the Fed will boost interest rates by just 25 basis points when their next rate decision is released on Feb. 1, up from 76.7% the day before and 57.3% a month ago. The remaining 6.7% of investors anticipate another 50 basis point hike next month. 

The Fed boosted rates by 50 basis points in December after 75 basis point increases each in June, July, September, and November. The central bank raised interest rates by 425 basis points in 2022 to a targeted range between 4.25% and 4.5%, the highest level in 15 years. The March contract is currently up $0.026 (+0.11%) an ounce to $24.030 and the DG spot price is $24.11.

Front-month silver futures advanced 2.2% Thursday to settle at $24.00 an ounce on Comex, and the March contract ticked up less than 0.1% in the first four days of the week. Silver rose 10% in December after increasing 14% in November, its biggest monthly gain since December 2020. It advanced 3% in 2022.  

Spot palladium increased 0.7% Thursday to $1,809.00 an ounce, but fell 1% this week. Palladium tumbled 4% in December after gaining 0.3% in November. It lost 5.7% in 2022. The DG spot price is currently down $29.40 an ounce to $1781.50

0.

Spot platinum edged up 20 cents Thursday to $1,078.40 an ounce, though it lost 1.9% in the first four days of the week. Platinum increased 3.4% last month after rising 11% in November, its best month since February 2021. It surged 10% in 2022. Currently, the DG spot price is down $12.20 an ounce to $1070.10.

Disclaimer: This editorial has been prepared by Dillon Gage Metals for information and thought-provoking purposes only and does not purport to predict or forecast actual results. This editorial opinion is not to be construed as investment advice or a recommendation regarding any particular security, commodity, or course of action. Opinions expressed herein cannot be attributable to Dillon Gage. Reasonable people may disagree about the events discussed or opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. It is not a solicitation or advice to make any exchange in commodities, securities, or other financial instruments. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisers with respect to these areas. By posting this editorial, you acknowledge, understand, and accept this disclaimer.