Gold slips on fading rate cut hopes

Gold slips on fading rate cut hopes

Gold slips early Monday on investors’ fading rate cut hopes as they await a series of key economic reports this week for firm signals on the Federal Reserve’s next moves in the central bank’s quest to tame inflation.

Just two weeks ago, the Fed was widely expected to begin cutting interest rates in March, but the CME FedWatch Tool now shows that investors aren’t betting on the rate cuts to start until May. The speculation follows some strong economic reports and statements from Fed officials last week that a cut might not happen right away.

The Fed’s favorite inflation measure, the personal consumption expenditures price index is due out at the end of the week with December data. Also expected to be closely watched, U.S. flash fourth-quarter GDP estimates are due on Thursday. 

Front-month gold futures slipped 0.2% last week to settle at $2,048.60 an ounce on Comex, though the most-active contract rolled to April from February. The April contract rose 0.4% Friday. Bullion gained 0.7% last month after rising 3.2% in November and increasing 6.9% in October. The metal rose 13% in 2023. The February contract is currently down $5.70 (-0.28%) an ounce to $2023.60 and the DG spot price is $2024.90.

The CME FedWatch Tool shows that 97.4% of the investors it tracks are betting that the Fed will keep its federal funds rate unchanged at 5.25% to 5.50% on Jan. 26, while 2.6% are expecting a 25 basis point cut. For March, 54.6% of investors are betting on rates holding steady, while 44.4% are projecting a cut. Most investors are anticipating a cut in May, though.

The Fed has raised interest rates by 5.25 percentage points since March 2022 to curb inflation. High interest rates are typically bearish for gold, but rate cuts would be bullish.

San Francisco Fed President Mary Daly said Friday on Fox Business that it’s “premature” to think rate cuts are around the corner. And Atlanta Fed President Raphael Bostic last week reiterated that he thinks the central bank will begin cutting rates in the third quarter. 

Consumer sentiment surged to a two-and-a-half year high in January, data released Friday showed, amid an improved outlook for inflation. It was the latest in a series of recent reports signaling that the economy remains resilient and able to handle high interest rates. 

Front-month silver futures fell 2.7% last week to $22.71 an ounce on Comex. The March contract lost 0.4% Friday. 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 $0.556 (-2.45%) an ounce to $22.155 and the DG spot price is $22.18.

Spot palladium slid 3.5% last week to $954.00 after declining 0.5% Friday. Palladium advanced 8.6% in December after losing 9.5% in November and dropping 10% in October. Palladium plummeted 38% last year. The DG spot price is currently down $11.20 an ounce to $949.50.

Spot platinum retreated 1.5% last week to $906.40 an ounce. It decreased 0.7% Friday. Platinum rose 8.1% in December after falling 0.7% in November and gaining 3.5% in October. Platinum dropped 6.8% in 2023. The current DG spot price is up $2.40 an ounce to $909.40.

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