Gold futures struggled for direction on Tuesday as the Federal Reserve revealed that it is ready to raise interest rates as long as it is needed to fight inflation. The yellow metal has erased all of its 2022 gains amid a rising-rate environment. Can gold prices recover?
June gold futures dipped $0.20, or 0.01%, to $1,813.80 per ounce at 19:43 GMT on Tuesday on the COMEX division of the New York Mercantile Exchange. Gold prices are down nearly 1% on the year, with an 8.5% loss over the last month.
Silver, the sister commodity to gold, is recording modest gains. June silver futures rose $0.079, or 0.37%, to $21.63 per ounce. The white metal has lost 7.3% year-to-date, but it has plummeted more than 23% over the last 12 months.
Despite gold’s losses on Tuesday, market analysts believe that gold could rebound soon.
“Gold is on an uptrend,” Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute, wrote in a weekly client note, adding that support could be found at the 200-day moving average.
However, the US central bank reiterated its position that the Fed has some wiggle room to be more aggressive on rate hikes. But first it needs evidence that inflation is coming down.
FX Daily Report confirmed:
Speaking during a Wall Street Journal event, Powell emphasized his central bank’s crusade to fight inflation, adding that it is within the realm of a possibility that the institution can accomplish a “softish landing” instead of a recession.
“There are a number of plausible paths to having a softish landing,” Powell said on Tuesday. “Sometimes it’s just a little bumpy. It’s still a good landing. What we need to see is inflation coming down in a clear and convincing way and we’re going to keep pushing until we see that.”
He added that the financial markets are functioning normally, despite tightening financial conditions. This could allow the Fed to keep raising rates at an aggressive pace, but first the Eccles Building needs to witness “clear and convincing evidence that inflation pressures are abating and inflation is coming down.”
Despite its notable weakness on Tuesday, the US Dollar Index (DXY) has had a strong 2022, rallying nearly 8%, which has been bearish for gold prices. The DXY, which gauges the greenback against a basket of currencies, fell 0.8% to 103.35. A lower buck is good for commodities priced in gold because it makes it cheaper for foreign investors to purchase.
Meanwhile, the US Treasury market was mostly in the green, with the benchmark 10-year yield rising ten basis points to 2.979%. The one-year yield rose 2.1 basis points, while the 30-year bond jumped 9.7 basis points to 3.181%.
Gold is sensitive to rising rates because it lifts the opportunity cost of holding non-yielding bullion.
“A weaker dollar and slight retreat in Treasury yields were seen as key factors triggering a move to the upside. Regardless of recent gains, the precious metal is certainly not out of the woods yet,” said Lukman Otunuga, senior research analyst at FXTM, in a note.
Better-than-expected economic data also weighed on gold prices: retail sales rose 0.9%, industrial production climbed 1.1%, manufacturing output jumped 0.8%, and business inventories swelled 2%.
In other metal markets, June copper futures rose $0.0395, or 0.94%, to $4.231 per pound. June platinum futures picked up $15.90, or 1.72%, to $941.20 an ounce. June palladium futures tacked on $19.40, or 0.97%, to $2,022.00 per ounce.