Gold starts week hanging tough against pressure from stronger Treasury yields as investors anticipate a Federal Reserve rate increase. The yellow metal continues to be buoyed by inflation and uncertainty caused by the omicron variant of the coronavirus.
The markets are anticipating the Fed will respond to soaring inflation as early as March with a rate increase, but the situation has created a tug-of-war for gold. It’s come under pressure as Treasury yields rise — taking a bit of shine off the yellow metal — but gold is also a traditional hedge against inflation.
The CME FedWatch Tool showed that 93.6% of traders anticipate a rate increase at the March meeting of the Federal Open Market Committee, up from 75.9% a week ago. The Fed committee also meets at the end of January, but few traders anticipate a rate hike then.
February gold futures rose 1.1% last week to settle at $1,816.50 an ounce on Comex, though the front-month contract lost 0.3% Friday. Gold advanced 2.9% in December — its best month since May — and climbed 4.1% in the fourth quarter. But it dropped 3.5% in 2021. Currently, the February contract is up $3.10 (+0.17%) an ounce to $1,819.60 and the DG spot price is $1,819.20.
The U.S. government and many schools and financial markets will be closed Monday for the Martin Luther King Jr. Day holiday, meaning the markets will have less liquidity. There are also no economic reports scheduled for release Monday.
Last week, data showed U.S. inflation rose at the highest level in 39 years in December. Retail sales dropped 1.9% in December as higher prices caused consumers to limit spending. Meanwhile, U.S. industrial production edged lower last month, and weekly initial jobless claims rose to the highest level since mid-November in the latest report.
The omicron variant of the coronavirus continued to spread around the world, adding at threat to the economic recovery which could boost gold prices. The U.S. surgeon general warned Sunday on CNN that “the next few weeks will be tough” as omicron spreads.
March silver futures rallied 2.3% last week to settle at $22.92 an ounce on Comex, though the front-month contract decreased 1.1% Friday. Silver gained 2.4% in December and 5.9% in the fourth quarter, though it dropped 12% in 2021. Silver prices are tied to industrial demand. The March contract is currently up $0.117 (+0.51%) an ounce to $23.035 and the DG spot price is $23.01.
Spot palladium fell 2.1% last week to $1,889.50 an ounce after dropping 0.9% Friday. Palladium rallied 9.6% in December, but it fell 0.4% in the fourth quarter and 22% in 2021. A global shortage of semiconductor chips means auto production is down, which has pressured demand for the metal. Palladium’s main use is in catalytic converters for gasoline-powered vehicles. Currently, the DG spot price is up $7.80 an ounce to $1,898.00.
Spot platinum increased 0.9% last week to $975.20 an ounce, though it retreated 0.6% Friday. The metal gained 2.9% in December and 0.2% in the fourth quarter. It lost 9.4% last year. The DG spot price is currently up $6.00 an ounce to $980.80.
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