Gold ends lower on Monday as inflation and Fed interest rate outlook remain center of attention

Gold futures posted a modest decline on Monday, as a rally in Treasury and dollar yields helped dampen appetite for precious commodities, which was contained by uncertainties over the spread omicron and Federal Reserve policies.

Gold’s rise on Friday was “tempered” on Monday as “risk aversion cooled and the US dollar made an offer,” said Stephen Flood, director of gold services at GoldCore.

“All eyes are on Friday’s US CPI release to gauge the trend in inflation, expect fireworks if any deterioration occurs,” he told MarketWatch. Investors are also eagerly awaiting the Fed’s December 14-15 meeting “to see how interest rate policy will adjust to inflation.”

“The Fed is caught between spraying the markets with higher rates, in order to ease inflationary pressures, or the real risk of scaring the stock markets,” he said. “If rates are signaled to rise, gold could suffer in the short term.” Higher rates increase the opportunity cost of owning the precious metal, making gold less attractive to investors.

The most active February gold contract GCG22,
+ 0.24%

GC00,
+ 0.24%
fell $ 4.40, or nearly 0.3%, to $ 1,779.50 an ounce, after a weekly decline of 0.1% for the most active contract, according to Dow Jones Market Data . Gold also climbed around 1.2% on Friday.

Mars silver SIH22,
+ 0.88%,
meanwhile, it fell 22 cents, or 1%, to close at $ 22.263 an ounce, after posting a weekly loss of 2.7% on Friday.

Gold rose to end last week as a weaker-than-expected employment report was seen unlikely to derail the Fed’s plan to cut monthly purchases of Treasuries and backed securities to mortgages, the report causing a flight to the collected assets. Like on.

However, the outlook for rate hikes weighed heavily on gold prices.

Gold has been consolidating for many months since Treasury Secretary Janet Yellen and Fed Chairman Jerome Powell signaled the central bank may start cutting and raising interest rates, Jeb said. Handwerger, editor-in-chief of the Gold Stock Trades newsletter service.

“Powell went from saying there is no inflation, then admitted transient inflation, but now he’s reluctantly confessed that there is plenty of inflation,” Handwerger said. “Now the question is, do they lower and raise rates to control inflation without blowing up the all-time bubble and preventing gold from climbing higher. So far they are managing.

“Now the question is, do they lower and raise rates to control inflation without blowing the all-time bubble and preventing gold from rising higher.”


– Jeb Handwerger, Gold equity trades

“History teaches us that we have to be careful because once inflation hits it’s hard to reverse the impact so quickly and easily,” he said. “Look at gold as the barometer.”

In Monday’s trades, the 10-year Treasury bill TMUBMUSD10Y,
1.450%
was down 1.437%, against 1.342%, while the dollar was up 0.2%, according to the ICE US Dollar Index DXY,
+ 0.16%.

Meanwhile, investors are waiting for the Consumer Price Index data to be released on Friday. “If we do not see inflation expectations stabilize, but rather continue to fall, then gold will fall in sympathy,” analysts at Sevens Report Research wrote in Monday’s bulletin. Conversely, a resurgence in inflation will support gold, but September lows of $ 1,725 ​​remain a line in the sand for the bulls.

Read: Traders see next US CPI reading close to 7% as volatile markets try to shake off the omicron and the hawkish Federal Reserve pivot

Other metals traded on the Comex ended higher on Monday, with March copper HGH22,
+ 0.54%
up nearly 1.7% to $ 4.338 a pound.

January Platinum PLF22,
+1.64%
edged 1.1% to $ 936.40 an ounce, while March’s PAH22 palladium,
+ 0.13%
was $ 1,845.60 per ounce, up 1.8%.

Read: Platinum and Palladium Show Global Uptrend for Commodities, On the Edge of Large Losses in 2021


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