Gold Primed for Its Most Stellar Week Yet
7/14/2023
Gold is on track for its best week since April, it pulled back slightly from its overnight highs. The precious metal is receiving support from recent data indicating a slowdown in inflation, which reduces the likelihood of the Federal Reserve maintaining its aggressive monetary policy.
The latest report from the Labor Department revealed that U.S. wholesale prices in June rose less than expected. This came after the consumer price index indicated a shift towards disinflation in the economy.
Federal Reserve policymakers closely monitor both the labor market and inflation reports. While most investors still anticipate another rate hike next month, there is growing speculation that the rate increases aimed at curbing inflation may be reaching their end.
On Comex, gold futures increased by .1% on Thursday, settling at $1,963.80 per ounce. The front-month contract experienced a rally of 1.6% in the first four days of the week. Gold prices declined by 2.7% last month, following a .9% retreat in May and a .6% increase in April. However, the metal recorded a gain of 5.7% in the first half of the year, recovering from a decrease of $2.40 in 2022. Currently, the contract is down $3.70 (-0.19%) at $1,960.10 per ounce, while the spot price stands at $1,957.20.
The producer price index rose by .1% last month, falling short of the economists’ forecast of .2%. Excluding food, energy, and trade services, it increased by .1% as well. In June, the consumer price index saw a year-on-year increase of .3%, the smallest gain since 2021. On a monthly basis, the CPI’s .2% increase was the smallest observed since August 2021.
Although gold is traditionally considered a hedge against inflation, it has taken a backseat to assets like the U.S. dollar and Treasuries in the current economic cycle. Following the inflation reports, the U.S. currency hit a 15-month low, which has maintained gold’s appeal to investors holding other currencies.
According to the CME FedWatch Tool, approximately 95% of investors expect the Fed to raise rates by 25 basis points at its July monetary policy meeting, while around 5% anticipate rates remaining unchanged. The Fed has implemented three rate hikes of 25 basis points each this year, in addition to 50 basis points in December and 75 basis points in June, July, September, and November 2022, along with smaller increases in March and May of last year. Since March 2022, the cumulative rate hikes have totaled 5 percentage points.
Last month, the Fed kept rates unchanged for the first time after a series of ten consecutive increases. In June, the benchmark federal funds rate remained at 5% to 5.25%.
On Comex, silver futures surged by 2.6% on Thursday, reaching $24.95 per ounce. The most-active contract has experienced a substantial increase of 7.1% so far this week. Silver prices dropped by 2.4% in June, following a 6.5% decline in May and a 4.4% gain in April. In the first half of this year, silver retreated by 4.2% after a 3% rise in 2022. Currently, the contract is up by $.06 (+0.26%) at $25.01 per ounce, with the spot price at $24.97.
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.
