- Gold prices fell to their lowest level in two months.
- US unemployment benefit claims surprisingly decreased last week.
- Markets are preparing for the release of the PCE price index for January.
Gold price fell on Thursday after the US released upbeat economic data. The prices fell to their lowest level in around two months after a decline in the number of weekly unemployment claims in the United States supported the Federal Reserve’s view that interest rates would need to rise to contain inflation.
US unemployment benefit claims surprisingly decreased last week, indicating a tight labor market and inflationary pressures.
Meanwhile, the nation’s gross domestic product expanded at a revised 2.7% annualized pace in the fourth quarter of 2022, down from the 2.9% announced last month.
Although the GDP data fell short of forecasts, Bob Haberkorn, senior market strategist at RJO Futures, stated that the Fed is still in control and can continue hiking rates because of reduced unemployment claims.
The Fed’s meeting minutes, released on Wednesday, revealed policymakers agreed that rates would need to rise but that switching to smaller increases would allow them to better match their adjustments to new data.
Investors are still debating the minutes, which revealed that several members supported raising rates by 50 basis points and emphasized the need for more proof of a sustained downward trend in inflation.
Fed fund futures have reduced expectations for future rate cuts and priced in three further rises to 5.25-5.50%.
Precious metals, especially gold, lose their allure as inflation hedges due to high-interest rates, increasing the opportunity cost of owning non-yielding assets.
Spot silver fell by 0.8% to $21.3233 per ounce, platinum was down by 0.2% to $947.153, and palladium dropped by 2.4% to $1,446.54.
By the end of December, UBS anticipates auto-catalyst palladium prices to drop to $1,400 per ounce due to slower economic growth and platinum substitution.
The personal consumption expenditures (PCE) price index readings for the fourth quarter, the Fed’s preferred inflation measure, were revised up to 3.7%, showing inflation was significantly more robust than previously believed, further weighing on precious metals.
Markets are preparing for the release on Friday of the Federal Reserve’s favorite inflation indicator, the January US personal consumption expenditures (PCE) price index. The previous month, the index increased by 0.3%. This month’s forecast calls for a 0.4% increase.