Federal Reserve Chairman Jerome Powell said Sunday that the central bank will move at a slower pace than the market expects to cut interest rates, and now investors aren’t pricing in a rate cut until the May policy meeting – not the next one in March. High interest rates are typically considered bearish for gold, so cuts would be supportive for the precious metal. But holding to high rates for a longer period of time would be bearish.
Front-month gold futures, rose 0.4% Tuesday to settle at $2,051.40 an ounce on Comex, though the most-active April contract fell 0.1% in the first two days of the week. Bullion slipped 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 up $5.80 (+0.28%) an ounce to $2057.20 and the DG spot price is $2043.90.
Prices advanced Tuesday as the dollar and U.S. Treasury yields softened. Weakness in those assets typically makes gold more attractive as an alternate investment.
Cleveland Fed President Loretta Mester said Tuesday that policymakers will probably cut rates “later this year” if the economy behaves as expected. Minneapolis Fed President Neel Kashkari said more progress is needed on inflation, though he applauded the progress that has been made to rein it in.
The Fed kept interest rates unchanged at 5.25% to 5.50% last week amid declines in the inflation rate. The Fed has raised interest rates by 5.25 percentage points since March 2022 to curb inflation.
Powell reiterated in Sunday’s interview that the Fed is unlikely to start cutting rates at its next policy meeting in March; about 78.5% of the investors tracked by the CME FedWatch Tool are betting that the Fed will keep rates unchanged next month, while 21.5% expect a 25 basis point cut. A month ago, more than 65% of investors were anticipating a cut in March. A majority of investors tracked by the tool now anticipate a rate cut will come at the following meeting in May.
Strong U.S. jobs data for January, which came out Friday, supported the Fed’s plan to hold rates unchanged for a while, since it signaled that the labor market remains resilient. The week before, the Fed’s favorite inflation measure, the personal consumption expenditures price index, showed that so-called core PCE, which excludes volatile food and energy prices, fell below 3% in December for the first time since March 2021.
The Fed has said it closely tracks labor market conditions as well as inflation when determining monetary policy.
This morning on CNBC’s Squawk Box, Minneapolis Federal Reserve President Neel Kashkari said he expects the central bank to cut rates only a few times this year, contrary to market expectations. Fed Governors Adriana Kugler and Michelle Bowman, Richmond Fed President Tom Barkin and Boston Fed President Susan Collins are all scheduled to speak Wednesday, while Treasury Secretary Janet Yellen is set to testify before a Senate committee Thursday. U.S. consumer price index revisions are due out Thursday, along with U.S. weekly initial jobless claims. Dallas Fed President Lorie Logan is set to speak Friday.
Front-month silver futures gained 0.3% Tuesday to $22.48 an ounce on Comex, though the March contract slid 1.4% in the first two 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 $0.058 (-0.26%) an ounce to $22.420 and the spot price is $22.48.
Spot palladium fell 0.2% Tuesday to $961.00 an ounce but is up 0.3% 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 $19.90 an ounce to $940.50.
Spot platinum gained 0.5% Tuesday to $908.70 an ounce and is up 0.9% in the first two 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. The spot price is currently down $15.10 an ounce to $895.90.
