July 23, 2024
Gold futures settle at a more than 1-year high as Fed signals only one more rate hike to come

Gold futures settle at a more than 1-year high as Fed signals only one more rate hike to come

Gold futures settled Thursday at a more than one-year high, after touching a high above $2,000 an ounce, finding support from declines in U.S. Treasury yields and weakness in the dollar.

Moves for the market followed the Federal Reserve’s 25 basis-point interest-rate hike announced Wednesday, as the central bank’s Chairman Jerome Powell and his colleagues signaled only one more hike would likely follow this year.

Price action
  • Gold futures for April delivery GC00, -0.02% GCJ23, -0.02% gained $46.30, or 2.4%, to settle at $1,995.90 per ounce on Comex. Prices marked the lowest most-active contract finish since March 10, 2022, FactSet data show.
  • Silver futures for May delivery SI00, -0.22% SIK23, -0.22% advanced 47 cents, or 2.1%, to $23.256 per ounce.
  • Palladium for June delivery PAM23, -0.13% declined by $12.90, or 0.9%, to $1,432.80 per ounce, while platinum for April delivery PLJ23, -0.07% edged up by $5.90, or 0.6%, to $992.90 per ounce.
  • Copper for May delivery HGK23, -0.56% rose 8 cents, or nearly 2%, to $4.1235 per pound.
Market drivers

The most-active gold futures contract moved closer to the $2,000 per ounce level Thursday, driven by the Fed’s signal that its policy interest rate won’t rise much further.

While Powell pushed back on market expectations of a rate cut this year, the market focused on the Fed’s “less hawkish” adjustment to the statement: the removal “ongoing increases” from the text of the statement, said Fiona Cincotta, senior financial markets analyst at City Index, in Thursday commentary. That suggested the central bank is “nearing the end of the hiking cycle.”

The Fed hiked its benchmark rate by 25 basis points on Wednesday, but both Powell and his colleagues on the FOMC signaled that only one more rate hike would follow at their next meeting in May before a pause.

Gold briefly topped $2,000 per ounce earlier this week and touched a high of $2,002 Thursday.

Read: What gold’s brief rise above $2,000 an ounce means as fears of banking crisis rattle investor nerves

The Fed’s 25 basis-point rate hike, coupled with the ongoing banking crisis, has further strengthened gold’s position as a “safe-haven asset,” said Joseph Cavatoni, chief market strategist, North America, at World Gold Council. “This has resulted in a noticeable increase in the price of gold, indicating that both short-term speculators and long-term investors are showing a strong interest in this asset.”

“Although there may be ongoing short-term volatility in the gold market as investors respond to the rate decision and economic outlook, we expect investors to consider strategic long-term allocations to gold over the course of the year,” said Cavatoni, in emailed commentary.

During Wednesday’s press conference, Powell said Fed officials were uncertain about the path ahead for interest rates, but analysts said he seemed to open the door for this to be the last rate hike for a while.

Gold prices had strengthened ahead of the Fed announcement, and “remained elevated from recent levels when the dot plot suggested the Fed might pause its rate increases after one additional 25 [basis point] hike next month,” George Milling-Stanley, chief gold strategist at State Street Global Advisors, wrote in comments emailed before the chairman’s press conference on Wednesday afternoon. “Market attention now looks set to focus on whether the pause actually occurs, and the timing of a possible pivot to rate cuts.”

Comments from U.S. Treasury Secretary Janet Yellen Wednesday that a blanket bank-deposit guarantee wasn’t being considered had sent stocks reeling Wednesday afternoon while boosting prices of gold.

In Thursday dealings, however, U.S. benchmark stock indexes traded mostly higher, while the ICE U.S. Dollar index DXY, +0.24% was modestly lower at 102.299 and the yield on the 10-year Treasury TMUBMUSD10Y, 3.421% fell to 3.452% from 3.497% Wednesday afternoon.

Source

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