Gold slips on dollar ahead of Fed

Gold slips on dollar ahead of Fed

Gold slips on rising dollar early Wednesday, ahead of the Fed comments this afternoon and despite support from concerns on geopolitical unrest.

Futures capped their best year since 2020 in December on expectations that slowing inflation growth and a resilient labor market will cause the Fed to begin reducing rates. The speculation has caused the dollar to weaken in recent weeks, but the currency posted its best day since March on Tuesday as some doubt arose about the central bank’s next moves. A stronger dollar is typically bearish for gold, but lower interest rates would be bullish.  

Investors are awaiting the minutes of the Fed’s December policy meeting, due out this afternoon, for further direction. The monthly U.S. jobs report for December is also scheduled to be released Friday.

Front-month gold futures rose $2.60 Tuesday to settle at $2,073.40 an ounce on Comex. The February contract advanced 0.1% last week. Markets were closed Monday for New Year’s Day. The February contract is currrently down $29.40 (-1.42%) an ounce to $2044.00 and the DG spot price is $2045.20.

Bullion gained 0.7% last month after rising 3.2% in November and gaining 6.9% in October. The metal increased 13% in 2023. Gold hit a record peak last week and is poised to test new records in 2024.

The CME FedWatch Tool shows that 91.2% of the investors it tracks are betting that the Fed will keep its federal funds rate unchanged at 5.25% to 5.50% in January, while 8.8% are expecting a 25 basis point cut. But that changes in March, with the central bank widely expected to cut, with another reduction expected in May. 

The Fed has raised interest rate cuts by 5.25 percentage points since March 2022 to curb inflation. The Fed has said it closely watches inflation and labor market data when determining monetary policy. 

The closely watched monthly U.S. jobs report for December is due out Friday, with the ADP employment report for December and U.S. weekly initial jobless claims data for last week scheduled for Thursday. 

The Fed’s favorite inflation measure, the personal consumption expenditures price index, excluding volatile food and energy prices, increased 1.9% on a six-month basis in November data, essentially putting inflation growth at the Fed’s target of 2%. It was still well above the target, at 3.2%, on an annual basis. 

Growing threats to shipping by Houthi rebels in the Red Sea caused Maersk to suspend shipping Tuesday “until further notice” in the key Red Sea and Suez Canal arteries. The Houthis say they are taking revenge against Israel for its campaign against Hamas in Gaza. But the disruptions to shipping could damage the global economy by pushing up freight costs and lengthening delivery times, CNN reported

Front-month silver futures slipped 0.6% Tuesday to settle at $23.95 an ounce on Comex. The March contract decreased 2% last week. Silver dropped 6.1% in December after advancing 12% in November and increasing 2.2% in October. It ticked up 0.2% in 2023. The March contract is currently down $0.773 (-3.23%) an ounce to $23.180 and the DG spot price is $23.12.

Spot palladium fell 2.6% Tuesday to $1,188.00 an ounce after slipping 8.7% last week. Palladium advanced 8.6% in December after losing 9.5% in November and dropping 10% in October. Palladium plummeted 38% last year. Currently, the DG spot price is down $16.90 an ounce to $1075.00.

Spot platinum gained 0.4% Tuesday to $986.40 an ounce after rising 1.5% last week. Platinum rose 8.1% in December after falling 0.7% in November and gaining 3.5% in October. Platinum is dropped 6.8% in 2023. The DG spot price is currently down $19.90 an ounce to $973.40.

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