Gold Rises to Six Month High

Gold Rises to Six Month High

Gold rises to a six-month high, rallying for a second day early Wednesday as the dollar slipped, making the yellow metal more attractive as an alternate investment.

Investors awaited two key bits of economic data Wednesday for further direction: The December manufacturing report from the Institute for Supply Management in the morning and the minutes of the last meeting of Federal Reserve policymakers. Markets remained focused on high inflation, the state of the economy, and what the Fed will do next about both. 

U.S. manufacturing contracted at the steepest pace since May 2020 in December, S&P reported Tuesday. Its Global U.S. manufacturing PMI index came in at 46.2, the lowest since early during the lockdown period, below even November’s 47.7. A month ago, the ISM’s U.S. manufacturing PMI report showed November had the first contraction since May 2020. 

Front-month gold futures rose 1.1% Tuesday to settle at $1,846.10 an ounce on Comex. The February contract advanced 1.2% last week. U.S. financial markets were closed Monday in observance of New Year’s Day, which fell on a Sunday this year. 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 $18.40 (+1.00%) an ounce to $1864.50 and the DG spot price is $1859.20.

The U.S. dollar index slid after touching a two-week high in trading Tuesday. A weaker dollar makes gold a more attractive investment for holders of other currencies. Gold also got a boost from the worsening COVID-19 pandemic situation in China and ongoing economic concerns.

In addition to the manufacturing report and the Fed minutes, investors were closely awaiting key U.S. job reports Thursday and Friday for indications on whether the Fed’s 425 basis points in interest rate increases in 2022 are hurting the labor market. 

The Fed raised rates by 50 basis points in December to 4.25% to 4.5%, the highest level in 15 years. High interest rates are typically bearish for gold. The central bank has indicated that it will maintain its aggressive monetary policy into 2023 despite some investors’ fears of a recession. 

The Fed raised rates by 75 basis points each in June, July, September, and November. Investors tracked by the CME FedWatch Tool are betting there’s a 68.3% chance the Fed will boost interest rates by just 25 basis points at policymakers’ next meeting on Feb. 1. The odds are 31.7% in favor of another 50 basis point hike. A month ago, 46.1% of investors anticipated a 25 basis point increase, with 44.9% at 50 basis points and 8.9% at 75. 

The ADP employment report and U.S. weekly initial jobless claims are due out Thursday, with monthly nonfarm payrolls for December scheduled for Friday.

Front-month silver futures rose 0.8% Tuesday to settle at $24.24 an ounce on Comex. The March contract gained 0.5% last week. Silver rose 10% in December after increasing 14% in November, its biggest monthly gain since December 2020. It advanced 3% in 2022. The March contract is currently up $0.134 (+0.55%) an ounce to $24.370 and the DG spot price is $24.33.

Spot palladium fell 4.7% Tuesday to $1,720.50 an ounce after rising 2.1% last week. Palladium tumbled 4% in December after gaining 0.3% in November. It lost 5.7% in 2022. The current DG spot price is up $48.10 an ounce to $1764.00.

Spot platinum advanced 1.9% Tuesday to $1,090.60 an ounce after rallying 4% last 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 up $5.90 an ounce to $1093.20.

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.