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Gold futures edged lower early Wednesday, pulling back from a nearly six-month high, as investors grew cautious ahead of an expected rate hike from the Federal Reserve and remarks by Chair Jerome Powell.
Price action
-
Gold for February delivery
GC00,
-0.10%
GCG23,
-0.10%
fell $3, or 0.2%, to $1,822.50 an ounce on Comex, after ending Tuesday at its highest since late June. -
March silver
SIH23,
+0.48%
rose 11 cents, or 0.5%, to $24.10 an ounce. -
January platinum
PLF23,
-0.03%
was down 0.3% at $1,035.50.50 an ounce, while March palladium
PAH23,
-0.78%
shed 0.9% to $1,920 an ounce. -
March copper
HGH23,
+0.91%
rose nearly 0.1% to $3.845 a pound.
Market drivers
“Traders are more optimistic about gold prices as there are fewer chances for the dollar index to score more gains from here onwards,” said Naeem Aslam, chief market analyst at AvaTrade, in a market update.
They’re optimistic because the Fed’s “armors have worked in fighting inflation, and now the time has come for the Fed to scale back on its efforts to fight inflation,” he said. “This could make the dollar index weaker and that could keep gold prices firmly above the $1,800 price mark.”
Gold was lifted Tuesday after the November consumer-price index came in softer than expected, leading investors to scale back expectations for how high the Fed may need to ultimately raise interest rates in its quest to wring out inflation that remains far above the central bank’s target.
Treasurys rallied, pulling down yields, while the dollar slumped to a nearly six-month low during the session. Lower yields on government bonds lower the opportunity cost of holding nonyielding assets like gold, while a weaker dollar makes commodities priced in the unit less expensive to users of other currencies.
Need to Know: This Treasury dealer just slashed its Fed terminal rate forecast on the eve of the FOMC decision
But investors may be cautious ahead of the conclusion of a two-day Fed meeting Wednesday afternoon. The Fed is widely expected to deliver a half-point rise to the fed-funds rate after a series of four straight three-quarter-point hikes. The decision is set to be announced about a half hour after gold futures settle for the session.
But all eyes will be on Powell, at a news conference following the announcement, as well as the so-called dot plot forecast that tracks expectations for interest rates from individual policy makers.
See: Fed seen slowing down to quarter-point hike in February after soft consumer price inflation reading
“After the CPI data, investors are now waiting for the Federal Open Market Committee, where a 0.5% rate hike seems almost certain. This will be followed by the latest rate decisions from the Bank of England and the European Central Bank with both of them forced to raise rates, even if this increases the risk of recession in both regions,” said Carlo Alberto De Casa, external market analyst at Kinesis Money.
“Any dovish comment coming from policy makers could give new fuel to gold’s recovery. Vice versa, hawkish rhetoric could determine a consolidation phase or some moderate correction, even if the main trend still appears positive,” he said in a note.
