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Gold slips despite inflation data

Friday, February 9, 2024

Gold slips despite inflation data

Gold slips in Friday morning trading despite inflation data that shows December had even lower inflation than initially reported. The bullion is under pressure from a stronger dollar and stock market.

The Labor department released revised consumer price index numbers this morning showing that the broad basket of goods and services measured increased 0.2% on the month, less than the originally reported 0.3%. While it is a modest change, it adds weight to the understanding that inflation was moderating at the end of 2023, giving more leeway to the Federal Reserve to start cutting interest rates later this year.

The Fed has raised interest rates by 5.25 percentage points since March 2022 to curb inflation. Dallas Fed President Lorie Logan is also set to speak Friday.

Front-month gold futures slipped 0.2% Thursday to settle at $2,047.90 an ounce on Comex, though the most-active April contract fell 0.3% in the first four days of the week. Bullion declined 0.2% in January after gaining 0.7% in December and rising 3.2% in November. The metal rose 13% in 2023. The April contract is currently down $8.40 (-0.41%) an ounce to $2039.50 and the DG spot price is $2025.10.

Rises in U.S. Treasury yields and the dollar index this week also kept a lid on gold prices, offsetting bullishness from geopolitical risk surrounding the expanding conflict in the Middle East. 

Treasury Secretary Janet Yellen said Thursday in her annual testimony before the Senate Banking Committee that inflation is slowing while wages continue to grow: “Prices are not rising rapidly anymore,” she said. 

Richmond Fed President Tom Barkin said Thursday that the Fed can afford to be patient about the timing of rate cuts, given the strong labor market and continued disinflation: “No one wants inflation to reemerge,” he said in prepared remarks at an Economic Club of New York event. “And given robust demand and a historically strong labor market, we have time to build that confidence before we begin the process of toggling rates down.”

The Fed kept interest rates unchanged at 5.25% to 5.50% last week amid declines in the inflation rate. 

Fed Governor Adriana Kugler said Wednesday that she’s “optimistic” on inflation but policymakers need more “confidence” that it’s continuing to slow. Boston Fed President Susan Collins said Wednesday that rate cuts are likely to come “later this year.” 

The comments from Fed officials this week echoed Fed Chairman Jerome Powell’s 60 Minutes  interview in which he reiterated that the Fed isn’t likely to start the cuts at policymakers’ next meeting in March. Investors are now pricing in May cuts. 

Higher interest rates are typically considered bearish for gold, so cuts would be supportive for the precious metal. But holding rates high for a longer period of time would be bearish. 

About 82.5% of the investors tracked by the CME FedWatch Tool are betting that the Fed will keep rates unchanged next month, while 17.5% expect a 25 basis point cut. A month ago, more than 65% of investors were anticipating a cut in March. 

Front-month silver futures gained 1.2% Thursday to $22.64 an ounce on Comex, though the March contract slid 0.7% in the first four days of the week. Silver fell 3.8% in January after dropping 6.1% in December and advancing 12% in November. It ticked up 0.2% in 2023. The March contract is currently down $0.021 (-0.09%) an ounce to $22.615 and the spot price is $22.59.

Spot palladium fell 1.2% Thursday to $901.00 an ounce, and it’s down 6% so far this week. Palladium tumbled 11% last month after advancing 8.6% in December and losing 9.5% in November. Palladium plummeted 38% last year. The current spot price is down $26.60 to $875.50.

Spot platinum gained 0.9% Thursday to $894.80 an ounce and is down 0.6% in the first four days of the week. Platinum fell 8% last month after rising 8.1% in December and falling 0.7% in November. Platinum dropped 6.8% in 2023. Currently, the spot price is down $13.40 an ounce to $881.60.

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