Dollar Loses, Gold Gains
6/16/2023
Gold experienced a slight lift as the dollar weakened, although it remained on track for a weekly decline after the Federal Reserve hinted at the possibility of further interest rate hikes.
On Wednesday, the central bank decided to keep the benchmark federal funds rate steady at 5.00% to 5.25%, marking its first pause after a series of ten consecutive rate increases aimed at combating inflation.
However, during a news conference following the rate decision, Chairman Jerome Powell stated that “nearly all” of the Fed’s policy makers anticipate the need for additional interest rate raises by the end of the year.
The potential for more rate hikes has a bearish impact on gold, making it less appealing compared to other financial assets. Nonetheless, the fact that the Fed maintained rates at their current level this time around is considered neutral or slightly bullish.
Investors eagerly await consumer sentiment data from the University of Michigan, which will be released on Friday and may offer further guidance.
On the Comex, gold futures rose $1.80 to settle at $1,970.70 per ounce on Thursday, although they had previously dropped to a three-month low during intraday trading. Throughout the first four days of the week, the front-month contract experienced a 0.3% decline. In May, bullion retreated by 0.9% after a 0.6% increase in April and an impressive 8.1% surge in March. The metal faced a $2.40 decline in 2022. At present, the contract has risen by $2.50 (+0.13%) per ounce to $1,973.20, while the spot price stands at $1,960.20.
In their assessment of future monetary policy, Fed policymakers emphasized their close monitoring of a diverse range of information, including labor market conditions, inflation pressures, inflation expectations, as well as financial and international developments.
On Thursday, the Labor Department reported that applications for unemployment benefits in the United States remained unchanged at 262,000 for the previous week.
This data suggests that weekly initial jobless claims have remained at their highest level since October 2021, indicating some weakness in the labor market.
Separate data released on Tuesday revealed that the U.S. consumer price index (CPI) experienced the lowest annual increase in two years last month. CPI rose by 4% compared to the same month the previous year, marking the smallest increase since March 2021.
It also showed a 0.1% gain from April. However, core CPI, which excludes volatile food and energy prices, painted a less optimistic picture, with gains of 5.3% year-on-year and 0.4% month-on-month.
According to the CME FedWatch Tool, approximately 74.4% of investors are speculating that the Fed will raise interest rates by 25 basis points at its July monetary policy meeting, while 25.6% anticipate no change in rates.
Throughout this year, the Fed has implemented three 25 basis point rate increases following larger hikes of 50 basis points in December and 75 basis points each in June, July, September, and November 2022, as well as smaller increases in March and May of the previous year.
In total, the rate hikes amount to 5 percentage points since March 2022.
Silver futures dropped 0.7% on the Comex to settle at $23.95 per ounce on Thursday, with the front-month contract experiencing a 1.9% decline during the first four days of the week. Silver faced a 6.5% decrease in May following a 4.4% gain in April and a significant 15% surge in March. It recorded a 3% increase in 2022. Presently, the contract has risen by $0.208 (+0.87%) per ounce to $24.155, and the spot price stands at $24.11.
Please note: The following post is intended solely for informational and thought-provoking purposes. It does not claim to accurately predict or forecast real-world outcomes. This editorial expresses an opinion and should not be taken as investment advice or a recommendation regarding specific securities, commodities, or actions. The author cannot be held responsible for these opinions.
