Gold futures settled higher Wednesday after data showed U.S. wholesale prices eased in May, providing another sign that inflation pressures are abating.
Prices for the precious metal then declined in electronic trading, as the Federal Reserve left its key interest rate unchanged for the first time in more than a year, but pointed to more rate hikes this year.
Price Action
-
Gold prices for August delivery
GC00,
+0.19% GCQ23,
+0.19%
rose $10.30, or 0.5%, to settle at $1,968.90 per ounce on Comex. Shortly after the Fed announcement, prices were at $1,957.40 in electronic trading. -
Silver for July delivery
SI00,
+0.51% SIN23,
+0.51%
gained 28 cents, or 1.2%, to $24.11 per ounce. -
Palladium for September delivery
PAU23,
-0.09%
advanced $43.60, or 3.2%, to $1,402.20 per ounce, while July platinum
PLN23,
+0.59%
fell $1.90, or 0.2%, to $980 per ounce. -
Copper for July delivery
HGN23,
+0.58%
rose 4 cents, or 1%, to $3.87 per pound.
What’s happening
On Wednesday, the Fed left its benchmark interest rate unchanged at a 5% to 5.25% range, but also indicated that the rate-hiking cycle is not over yet. The signal that the Fed was not done was in the so-called “dot plot” forecast which showed the benchmark rate rising to a range of 5.5%-5.75%.
The as-expected FOMC announcement, “along with language confirming the Fed’s continued inflation vigilance, seemingly indicated the Fed may maintain a higher Fed funds target rate for longer,” said Jeff Klearman, Portfolio Manager of GraniteShares, which runs the GraniteShares Gold Trust
BAR,
It also “left open the possibility of lower rates perhaps as early as later this year, if conditions allow.”
“The uncertainty surrounding future Fed monetary policy is likely to continue into the near future,” he told MarketWatch. “Concerns surrounding the effect of cumulative rate hikes on future economic growth, as well as concerns regarding regional bank stress, seems to have tilted investor expectations in favor of a less aggressive Fed going forward and, as a consequence, of potentially higher gold prices.”
Early Wednesday, data from the U.S. Labor Department showed U.S. annual wholesale prices increased by only 1.1% for the 12 months ended in May from 2.3% in the prior month. That’s the lowest reading since December 2020.
For the month, U.S. wholesale prices fell 0.3% in May — the third drop in the past four months. Economists polled by the Wall Street Journal had forecast a 0.1% decline in the producer price index. Stripping out volatile food and energy prices, the data showed that core inflation was flat last month and in line with expectations.
The PPI data followed a reading on consumer prices released Tuesday, which showed that the yearly rate of inflation slowed to 4% from 4.9%, marking the lowest level since March 2021.
Analysts had said that the slowdown in inflation supported the potential for the Federal Reserve to “skip” a July increase in interest rates.
An interest-rate pause has already been “fully factored in” by the traders, said Chintan Karnani, director of research at Insignia Consultants, ahead of the Fed decision, so the “July interest-rate outlook is the key now.”
The world is “nearing an interest-rate cut with the passing of each month, unless there is another big spike in inflation,” he said. The U.S. dollar index may have “formed a medium term top.” That would be supportive for dollar-denominated gold prices.
In Wednesday dealings, the ICE U.S. Dollar index
DXY,
was 0.2% to 103.15 after trading as low as 102.66.
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