Gold price steadies though still propped up by slow-acting Fed
London (Mar 30) Gold futures give back a sliver of the previous session’s gains on Wednesday but remain underpinned near term as expectations for cautious Federal Reserve interest-rate hikes dent the dollar and depress bond yields, typically to the benefit of precious metals.
Gold snapped a three-session losing streak to settle higher Tuesday after Fed Chairwoman Janet Yellen stressed that the central bank will be slow moving, quashing speculation that the Fed could raise interest rates as early as April and even putting a June hike in question.
“If the Fed takes its time before implementing the next rate hike, this will have a positive impact on the gold price in our view,” Commerzbank commodities analysts said in a note.
In Wednesday trading, June gold GCM6, +0.01% slipped $1, or less than 0.1%, to $1,236.70 an ounce. Despite a rough trading patch in late March, gold prices are up some 17% so far in 2016. The SPDR Gold Trust GLD, +1.85% trades down 0.8% early Wednesday.
Yellen’s dovish tone sent Treasury yields lower and hurt the U.S. dollar as rising interest rates bolster the U.S. currency at the expense of metals that don’t bear interest, including gold and other dollar-priced commodities.
The U.S. Dollar Index DXY, -0.37% a measure of the buck against six rivals, slid 0.3% to 94.89 in Wednesday trading. The market’s reaction to the latest Fedspeak extended to riskier assets, including equities, which closed Tuesday at their best 2016 levels. U.S. stocks were indicated for a higher start.
Yellen said it’s too early to determine whether the rise in core inflation will be sustained. She said financial conditions are worse now than they were in December when the Fed uncorked the first interest rate hike in nearly a decade. Yellen also said the U.S. central bank will introduce more bond purchases and swaps should the economy stumble but she didn’t specifically mention negative interest rates.
The chairwoman’s remarks echoed the Fed’s policy statement from earlier this month but tempered market speculation that had emerged in recent days after a series of increasingly hawkish remarks by some of Yellen’s colleagues.
As the Fed guessing game continues, attention remains fixed on Friday’s release of March payrolls data; it’s expected to show a solid, if not stellar, clip of hiring. Markets will get a snapshot of the employment picture when ADP on Wednesday releases its tally of private-sector hiring.
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As for other metals trading, May silver SIK6, +0.90% gained 13 cents, or 0.9%, to $15.37 an ounce. May copper HGK6, -0.52% fell 1 cent, or 0.6%, to $2.20 a pound, July platinum PLN6, +0.61% rallied $5.60, or 0.6%, to $972.50 an ounce, while June palladium PAM6, +0.58% rose $2.30, or 0.4%, to $575.50 an ounce.
Base metals are moving in part due to dollar moves but are increasingly seeing supply/demand factors come into play.
“Copper fell for a time to $4,850 per ton nonetheless, thus hitting its lowest level in nearly three weeks,” the Commerzbank analysts point out in their note.
They cite a reduction in copper stocks in the warehouses of the London Metals Exchange, “which has been ongoing for weeks now [and] is being largely ignored by the market.”
For the first time since October 2014, those stocks dipped below the 150,000 ton mark again Tuesday. Copper stocks have now been reduced by around 90,000 tons, or 38%, since the beginning of the year, which points to solid demand for copper, the analysts said.
“However, it is questionable whether this is all real demand or whether there have simply been shifts. After all, in China copper stocks in the SHFE warehouses have been increased by a good 200,000 tons since the start of the year and currently find themselves close to a record high,” they said.