Gold Yo-Yos After Hitting Five-Week High

Gold Yo-Yos After Hitting Five-Week Hig

Gold yo-yos after hitting five-week high in overnight trading, falling 1% Monday morning on stronger dollar and bond yields. The yellow metal had been boosted by speculation over a potential blow to the U.S. economy from an aggressive Federal Reserve approach to combating inflation. Investors worry last week’s report on the highest U.S. inflation since 1981 will force the Fed to take an even more aggressive monetary-policy stance than previously anticipated.

The yellow metal retreated from the peak as both U.S. Treasury yields and the dollar touched four-week highs, making gold less attractive as an alternate investment. All three assets have reacted to data released Friday showing the consumer price index rose 8.6% in May from a year earlier. The report from the U.S. Bureau of Labor Statistics triggered a selloff in bonds Friday that boosted gold prices.

Gold also got some support because it’s a traditional hedge against inflation. But investors are speculating that the Fed will have to act even more aggressively than it had planned – possibly as soon as this week – after the CPI completely repudiated expectations that U.S. inflation had peaked in March. Interest-rate increases are considered bearish for gold.

August gold futures surged 1.4% last week to settle at $1,875.50 an ounce on Comex after the most-active contract advanced 1.2% Friday. Gold dropped 3.3% in May, its worst month since September. It retreated 3.5% in 2021. The August contract is off $35.708 (-1.98%) an ounce to $1,839.80 and the DG spot price is $1835.50.

Fed officials had previously signaled that they would raise interest rates by a half percentage point both at a meeting this week and one in July to tackle the inflation rate. But some market watchers, including Barclays Plc and Jefferies LLC now anticipate a three-quarter percentage point increase amid fears that the Fed must act to prevent – or minimize – an economic slowdown.

An increasing number of investors now expect a 75-basis-point increase on Wednesday, according to the CME’s FedWatch Tool. The central bank increased benchmark rates by half a percentage point in May, in the second rate hike of 2022 and the largest in 22 years. Rate increases are typically considered bearish for gold.

The Fed’s favorite inflation measure – the personal consumption price index — slowed to 6.3% in April from a 40-year high of 6.6% in March, data released at the end of May showed. It was the first decline in the personal consumption index in a year and a half.

In addition to inflation, gold still has some haven support because of uncertainty around the COVID-19 pandemic and the war in Ukraine.

Front-month silver futures increased 0.1% last week to settle at $21.93 an ounce on Comex after rallying 0.5% Friday. Silver dropped 6.1% in May after losing 8.2% in April. It retreated 12% in 2021. Silver prices are tied to industrial demand. The July contract is down $0.546 (-2.49%) an ounce to $21.385 and the DG spot price is $21.37.

Spot palladium dropped 2.8% last week to $1,952.00 an ounce and retreated 0.4% Friday. The metal lost 14% in May, the biggest monthly decline since September. It retreated 22% in 2021. Currently, the DG spot price is down $73.50 an ounce to $1,878.50.

Spot platinum fell 3.4% last week to $983.30 an ounce, and it slipped 0.2% Friday. It gained 2.3% last month and lost 9.4% last year. The DG spot price is currently down $31.60 an ounce to $952.20.


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