Gold rises early Monday extending gains on last week’s key inflation report ahead of this week’s Fed meeting as investors bet on interest rate cuts beginning in September.
Investors will be awaiting the policy statement from this week’s Fed meeting and subsequent remarks by Chairman Jerome Powell for further indicators on the central bank’s thinking. Monetary policy decisions are also due this week from the Bank of Japan and the Bank of England.
The Fed’s favorite inflation measure, the personal consumption expenditures price index, was up 2.5% in June from a year ago, in line with expectations, data showed Friday. “Core” PCE, which excludes volatile food and energy prices, gained 2.6% in the same period. The central bank has a 2% target for inflation.
Front-month gold futures fell 0.8% last week to settle at $2,427.90 an ounce on Comex, though the most-active December contract gained 1.2% Friday. Bullion is up 3.8% so far this month after falling 0.3% in June and gaining 1.9% in May. The metal rose 13% in 2023.
On a month-on-month basis, headline PCE increased 0.1% in June, while core PCE rose 0.2%, according to data from the Bureau of Economic Analysis. Meanwhile, personal income rose just 0.2%, below the estimate of 0.4%, while spending gained 0.3%, in line with estimates.
The Fed closely watches both inflation and labor market data when determining monetary policy.
As inflation approaches the central bank’s target, it’s more likely to begin to cut rates. An interest rate reduction would be considered bullish for gold, which becomes a more attractive alternate investment when rates go down.
Key job reports are also due on Wednesday, Thursday and Friday. The private payrolls report from ADP comes out Wednesday with July data. That’s followed by U.S. weekly initial jobless claims on Thursday and the most closely watched one – the U.S. monthly jobs report – due out Friday with July data. That’s after Wednesday’s Fed decision.
The CME FedWatch Tool shows 95.9% of the investors tracked are betting that the Fed will keep rates unchanged Wednesday. But all expect the central bank to start cutting in September, with a huge majority anticipating a 25 basis point reduction. The Fed has kept interest rates steady at 5.25% to 5.50% for about a year after raising them by 5.25 percentage points since March 2022 to rein in inflation.
The yellow metal touched record highs earlier this month.
A Bloomberg report published Monday showed that gold is the best portfolio hedge in the event of Donald Trump’s reelection as U.S. president, beating the dollar. The yellow metal would be poised to rally beyond recent records under those circumstances, the report indicated.
September silver futures declined 4.4% last week to settle at $28.02 an ounce on Comex, though the front-month contract increased 0.2% Friday. Silver is down 5.2% so far this month after falling 2.9% in June and surging 14% in May. It ticked up 0.2% in 2023.
Spot palladium retreated 0.3% last week to $910.50 an ounce after falling 1.6% Friday. Palladium is down 8.2% in July after rallying 8.1% last month and declining 5.1% in May. Palladium plummeted 38% last year.
Spot platinum fell 2.7% last week to $941.40 an ounce, though it edged up 20 cents Friday. Platinum is down 6.2% in July after falling 3.7% in June and advancing 10% in May. Platinum dropped 6.8% in 2023.
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