Gold slips on Easing Mideast Tensions

Gold slips on Easing Mideast Tensions

Gold slips early Wednesday when easing Mideast tensions sparked hedge funds to reduce their holdings. The bullion sticking above $2300 an ounce, as investors awaited key inflation data due out Friday for further direction.

The yellow metal set new records earlier this month on geopolitical tensions related to the conflicts in the Middle East and Ukraine, but investors have turned to the economy, with growing expectations that the Federal Reserve will delay the central bank’s planned interest rate cuts. High interest rates are typically considered bearish for gold. 

The Fed’s favorite inflation measure – the personal consumption expenditures price index – comes out Friday with March data and is expected to confirm that inflation has remained stubbornly high, likely delaying rate cuts. 

Front-month gold futures lost 0.2% Tuesday to settle at $2,342.10 an ounce on Comex. The most-active June contract is down 3% so far this week. Bullion is up 4.6% this month after rising 8.9% in March – the biggest monthly gain in more than three years – and dropping 0.6% in February. The metal rose 13% in 2023. The June contract is currently down $8.10 (-0.35%) an ounce to $2334.00 and the DG spot price is $2324.10.

The PCE is expected to have slightly accelerated to 2.6% on an annual basis amid rising energy costs. The Fed’s goal is for 2% inflation. So-called core PCE, which excludes volatile food and energy prices, probably rose 0.3% from the prior month, similar to February’s gain. The Fed closely watches both labor market conditions and inflation when determining monetary policy.  

Most investors are now anticipating a rate cut won’t come until September. The Fed has raised interest rates by 5.25 percentage points since March 2022 in an effort to cut inflation, but kept rates unchanged at 5.25% to 5.50% at its meeting last month.

About 98.1% of the investors tracked by the CME FedWatch Tool are betting that the Fed will keep rates unchanged in May, while 1.9% expect a 25 basis point cut. More than 80% of investors also expect the Fed to hold rates at current levels in June, and more than half anticipate rates holding steady in July. 

In other economic news, U.S. GDP data and wholesale inventories data are due out Thursday, along with U.S. weekly initial jobless claims. Personal income and University of Michigan consumer spending data are due Friday, along with the PCE. The Bank of Japan also has a monetary policy decision scheduled for the end of the week.

July silver futures increased 0.4% Tuesday to settle at $27.64 an ounce on Comex as the front-month contract fell 5.1% in the first two days of the week. Silver is up 11% in April after gaining 8.9% in March and losing 1.2% in February. It ticked up 0.2% in 2023. The July contract is currently down $0.133 (-0.48%) an ounce to $27.505 and the DG spot price is $27.31.

Spot palladium rose 1.1% Tuesday to $1,034.50 an ounce and is up 0.4% so far this week. Palladium is up 0.7% this month after advancing 7.7% in March and falling 4.6% in February. Palladium plummeted 38% last year. Currently, the DG spot price is down $15.80 an ounce to $1016.00.

Spot platinum lost 0.8% Tuesday to $919.30 an ounce and declined 2.1% in the first two days of the week. Platinum is up 0.6% in April after rising 3.3% in March and decreasing 4.9% in February. Platinum dropped 6.8% in 2023. The DG spot price is currently down $8.30 an ounce to $911.40.

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