Gold steadies, still heads for monthly drop

Gold steadies, still heads for monthly drop

Gold steadies but still heads for first monthly drop in three early Wednesday as the U.S. House of Representatives appeared poised to pass a bill to raise the U.S. debt ceiling, expectations mounted for another Federal Reserve interest rate hike in June and the dollar looks poised to set its best month since September 2022.

The House is expected to vote Wednesday evening to raise the debt ceiling, and leaders of both political parties indicate that the measure has enough votes to pass. A previous standoff over the debt ceiling, to avert a default on $31.4 trillion in U.S. debt, drew haven investors to gold. 

U.S. consumer confidence slipped to a  six-month low in May amid expectations of a softening labor market, according to data released Tuesday. The Fed has said it watches inflation and labor market data closely before deciding on monetary policy. U.S. inflation measured by the personal consumption expenditures price index, the Fed’s favorite inflation measure, bounced higher in April, data released Friday showed, also helping shift investor sentiment toward another hike. 

August gold futures rose 0.7% Tuesday to settle at $1,977.10 an ounce on Comex. U.S. financial markets were closed Monday for the Memorial Day holiday, so there was no settlement. The front-month contract dropped 1.9% last week. Bullion is down 1.1% this month after increasing 0.6% in April and 8.1% in March. The metal fell $2.40 in 2022. The August contract is currently tipping up by 3.5 (+0.18%) an ounce to $1980.60 and the DG spot price is $1965.90.

The PCE index rose 4.4% in the 12 months ended in April, faster than the 4.2% increase in March, the data released Friday showed. 

Investors are awaiting Friday’s key U.S. monthly jobs report for further indications on whether the Fed will raise interest rates again in June or pause its series of rate hikes to curb inflation. The ADP employment report for May and last week’s initial jobless claims are due out Thursday.

Higher interest rates are typically bearish for gold because they make the yellow metal less attractive as an alternate investment, but a pause or an end to the rate hikes would be bullish.

About 57.7% of investors tracked by the CME FedWatch Tool are betting that the Fed will raise rates by another 25 basis points at the next meeting in June, while 42.3% expect rates will remain unchanged. A week ago, 71.9% of investors were expecting rates to remain unchanged. 

The Fed raised rates by another 25 basis points earlier this month. The Fed has raised rates by 25 basis points three times this year following rate hikes of 50 basis points in December and 75 basis points each in June, July, September and November 2022. The federal funds rate is currently at 5.00% to 5.25%. 

July silver futures dropped 0.5% Tuesday to settle at $23.24 an ounce on Comex. The front-month contract retreated 2.9% last week. Silver is down 7.9% this month after gaining 4.4% in April and 15% in March. It rose 3% in 2022. The July contract is currently up 0.131 (+0.56%) an ounce to $23.370 and the DG spot price is $23.35.

Spot palladium decreased 2% Tuesday to $1,422.00 an ounce and dropped 5.8% last week. Palladium is down 6.7% this month after rising 2% in April and 3.7% in March. Palladium lost 5.7% in 2022. Currently, the DG spot price is down $18.50 an ounce to $1399.00.

Spot platinum decreased 0.6% Tuesday to $1,025.70 an ounce and lost 4.2% last week. Platinum is down 5.5% in May after adding 8.5% in April and 3.7% in March. Platinum surged 10% in 2022. The DG spot price is currently down $14.40 an ounce to $1011.50.

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