Gold Weakens on Powell testimony

Gold Weakens on Powell testimony

Gold weakens on Fed Chair Powell testimony after slipping early Wednesday on a stronger dollar.. Powell is set to speak this morning and tomorrow as part of his biannual report to congress.

This morning, Federal Reserve Chairman Jerome Powell indicated the likelihood of more interest rate increases as the Fed continues the fight to bring down inflation. “Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” Powell said in prepared remarks for testimony he will deliver to the House Financial Services Committee.

The Fed left its benchmark federal funds rate at 5.00% to 5.25% last week, its first pause after 10 consecutive rate increases to combat inflation. This move had raised hopes that the rate hikes might be ending, but Powell’s comments burst that bubble by indicating that last week’s pause was likely just a brief respite rather than an indication that the Fed is done hiking.

August gold futures dropped 1.2% Tuesday to settle at $1,947.70 an ounce on Comex. The front-month contract fell 0.3% last week. Comex futures traded without a settlement Monday, as U.S. financial markets were closed for the Juneteenth holiday. Bullion retreated 0.9% in May after increasing 0.6% in April and 8.1% in March. The metal fell $2.40 in 2022. Currently, the August contract is down $7.60 (-0.39%) an ounce to $1940.10 and the DG spot price is $1921.50.

About 79.4% of investors tracked by the CME FedWatch Tool are betting that the Fed will raise interest rates by 25 basis points at its July monetary policy meeting, while 20.6% expect it to keep rates unchanged. 

The Fed has increased rates by 25 basis points three times this year following hikes of 50 basis points in December and 75 basis points each in June, July, September and November 2022 and smaller increases in March and May of last year. The rate hikes have totaled 5 percentage points since March 2022.

U.S. housing starts data out Tuesday showed that new home construction climbed by the most in three decades in May. The report signaled that the housing market may be recovering after the Fed’s rate hikes dampened buyer demand. 

Investors will also be closely watching data scheduled for Thursday including U.S. weekly initial jobless claims, existing home sales for May and the index of leading U.S. economic indicators for May. 

September futures tumbled 3.7% Tuesday to settle at $23.45 an ounce on Comex. The most-active contract slipped 0.3% last week after rolling to September from July. Silver decreased 6.5% in May after gaining 4.4% in April and 15% in March. It rose 3% in 2022. The September contract is currently down $0.405 (-1.73%) an ounce to $23.040 and the DG spot price is $22.81.

Spot palladium decreased 3.1% Tuesday to $1,397.00 an ounce. It increased 7.3% last week. Palladium fell 9.3% last month after rising 2% in April and 3.7% in March. Palladium lost 5.7% in 2022. Currently, the DG spot price is down $22.10 an ounce to $1376.50.

Spot platinum lost 2.1% Tuesday to $970.70 an ounce. It dropped 2.7% last week. Platinum retreated 7.4% 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 $14.30 an ounce to $958.70.

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