Gold Tips down on varying Fed signals

Gold Tips down on varying Fed signals

Gold tips down early Wednesday on varying Fed signals on future monetary policy from Federal Reserve officials.

Cleveland Fed President Loretta Mester told the Financial Times in an interview published Monday that the Fed is less focused on rate cuts than how long the central bank needs to keep rates high to meet its target of 2% inflation. But San Francisco Fed President Mary Daly said that rate cuts are likely to be appropriate next year. 

Markets rallied last week on speculation that the Fed will begin easing monetary policy next year after the Fed kept interest rates unchanged at 5.25% to 5.50% last week. Comments following the meeting were also seen as signaling an upcoming end to its monetary policy tightening cycle. Higher interest rates are typically bearish for gold so an end to interest rates would be bullish for the yellow metal.

Investors were awaiting the release of the Fed’s favorite inflation measure, the personal consumption expenditures price index, on Friday for further guidance. 

Front-month gold futures gained 0.6% Tuesday to settle at $2,052.10 an ounce on Comex, and the February contract advanced 0.8% in the first two days of the week. Bullion rose 3.2% last month after gaining 6.9% in October and falling 5.1% in September. The metal is up 12% in 2023. The February contract is currently down $4.70 (-0.23%) an ounce to $2047.40 and the DG Spot price is $2034.20.

The CME FedWatch Tool shows that 87.6% of the investors it tracks are betting that the Fed will keep its federal funds rate unchanged in January, while 2.4% are expecting a 25 basis point cut. But that changes in March, with the central bank widely expected to cut, with another expected in May. The central bank has boosted rates by 5.25 percentage points since March 2022 to curb inflation to the 2% level. 

“The next phase is not when to reduce rates, even though that’s where the markets are at,” Mester said. “It’s about how long do we need monetary policy to remain restrictive in order to be assured that inflation is on that sustainable and timely path back to 2%.” 

But Daly told the Wall Street Journal that the Fed must make sure that “we don’t give people price stability but take away jobs.”

The Fed closely watches both inflation and labor market reports when setting monetary policy. The November consumer price index report previously showed that inflation slowed last month, and the November  jobs report beat estimates.

In addition to the key PCE report for November, investors will be watching economic reports Friday including durable goods orders, personal income, personal spending and new home sales for November and consumer sentiment report for December. Revised third-quarter U.S. GDP comes out Thursday along with the index of leading U.S. economic indicators and initial jobless claims for last week.

Front-month silver futures increased 0.9% Tuesday to settle at $24.32 an ounce on Comex, and the March contract increased 0.7% in the first two days of the week. Silver advanced 12% in November after increasing 2.2% in October and decreasing 9.5% in September. It’s up 1.2% in 2023. The March contract is currently up $0.289 (+1.19%) an ounce to $24.610 and the DG spot price is $24.31.

Spot palladium gained 4.3% Tuesday to $1,249.50 an ounce and has rallied 3.8% so far this week. Palladium lost 9.5% last month after dropping 10% in October and rising 3% in September. Palladium has plummeted 31% so far this year. Currently, the DG spot price is down $22.40 an ounce to $1223.50.

Spot platinum advanced 1.2% Tuesday to $967.60 an ounce, and it gained 1.9% so far this week. Platinum fell 0.7% in November after gaining 3.5% in October and declining 6.6% in September. Platinum is down 9.6% in 2023. The current DG spot price is up $1.50 an ounce to $968.10.

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